Anoop V. Mohta, J.
1. The present Appeal is filed by the Appellant-Original Plaintiff challenging an ad-interim order of the learned Single Judge, in the matter of invocation of performance bank guarantee and against the direction to deposit the proceeds in the account of third party and not of the beneficiary.
2. On 9 March 2016, in view of urgency expressed and as the regular Bench could not take this matter, it was heard substantially and kept on 23 March 2016. The parties have no objection for hearing of this Appeal finally at admission stage itself. It was heard from time to time, accordingly.
3. The Appellant/Plaintiff (Sub-contractor), Larsen and Toubro Limited (for short, L and T ), a company engaged in business of construction of large infrastructural projects, has filed this Appeal and challenged Judgment and order dated 29 February 2016 passed by the learned Single Judge, pending the Notice of Motion in the Suit. The Appellant's Application for an ad-interim relief restraining Respondent No.1 (for short, the Bank ), Respondent No.2-GVK Projects and Technical Services Limited ( Contractor) (for short, GVK Projects ) and Respondent No.3-GVK Ratle Hydro Electric Project Private Limited (for short, GVK Ratle ) ( the owner ) from acting in furtherance of the purported invocation of Performance Bank Guarantee (for short, PBG ) dated 11 July 2013 issued by the Bank in favour of GVK Projects for Rs.98,35,00,000/-, is rejected.
4. The learned Single Judge, pending the Notice of Motion, granted protective relief on 14 January 2016. It has been extended from time to time. The Appellant preferred the Appeal on 3 March 2016, along with Notice of Motion for stay of the Judgment. The Appellate Bench has also extended the said protection, pending the final disposal of the Appeal.
5. The learned Senior Counsel for Respondent Nos. 2 and 3 opposed the Appeal and so also the prayers made in Notice of Motion for stay/interim reliefs. Respondent-Bank, however, though has not filed a separate Appeal, supported the submission of the Appellant, so far as the directions of releasing PBG amount in favour of GVK Ratle, as PBG terms and conditions provides for release of amount in favour of GVK Projects. The learned counsel for the parties submitted their written submissions also in support of their respective contentions.
6. On 20 July 2012, GVK Ratle, awarded a contract to the GVK Projects, for execution of Civil and Hydro Mechanical Works of 850 MW Ratle Hydro Electric Project on the Chenab River, Drabshala Village, District Kishtwar, Jammu and Kashmir (for short, the project ). GVK Projects awarded the subcontract to the Appellant, on 5 July 2013, for certain work.
7. At the instance and request of the Appellant, the Bank has sanctioned PBG facility on 10 October 2011 on the terms and conditions as agreed between the parties. The Appellant has also executed a counter Guarantee/Indemnity in favour of the Bank along with the necessary documents. By letter dated 9 July 2013, the Appellant/Borrower requested to issue PBG of Rs.98.35 Crores in favour of GVK Projects. It was issued accordingly. GVK Projects, is the beneficiary of PBG. GVK Ratle being the owner of the project is also signatory to the terms and conditions of PBG.
8. As per the Appellant, based upon the subsequent events and as reflected in the correspondence/communications, the project work was required to be stopped. Though requested, but for want of further communications and non-cooperation of others and inspite of the repeated representations even by the owner, the Appellant could not resume its work. There were allegations and counter allegations with regard to no progress of the project work. The Appellant's case was that the work was suspended from 11 July 2014 due to a hostile and insecure atmosphere and frequent local disturbance at the Project area. The Owner-contractor, however, denied the same. Those communications are read and referred by the learned Senior Counsel in support of their respective contentions.
9. The learned Senior Counsel appearing for the Appellant has read and referred to the following Judgments
i) United Commercial Bank Vs. Bank of India and Ors. (1981) 2 SCC 766)
ii) Hindustan Construction Co. Ltd. Vs. State of Bihar and Ors. (1999) 8 SCC 436)
iii) Crest Communications Ltd. Vs. State Bank of India and Anr. (2000 (3) Mh.L.J.163)
10 The learned Senior Counsel appearing for Respondent Nos. 2 and 3, has read and referred to the following Judgments
a) Dwarikesh Sugar Industries Ltd. Vs. Prem Heavy Engineering Works (O) Ltd. and Anr. (1997) 6 SCC 450)
b) BSES Ltd. (Now Reliance Energy Ltd.) Vs. Fenner India Ltd. and Anr. (2006) 2 SCC 728)
c) M/s. Satyanarayana and Co. Vs. M/s. West Quay Multiport (Private Limited) and Anr. (Appeal (L) No. 395 of 2015, dated 9 June 2015 (Bom. HC)
d) M/s. S. Satyanarayana and Co. Vs. M/s. West Quay Multiport (Private Limited) and Anr. (ARBP (L) No. 647 of 2015, dated 21 April 2015 (Bom. HC)
e) U.P. State Sugar Corporation Vs. Sumac International Ltd. (1997) 1 SCC 568)
f) Mahatma Gandhi Sahakara Sakkare Karkhane Vs. National Heavy Engg. Co-op. Ltd. and Anr. (2007) 6 SCC 470)
g) Amir Chand Vs. Krishna Chandra Bhowmik (1936 SCC OnLine Cal 48=AIR 1936 Cal 315)
h) Crest Communications Ltd. (Supra)
i) Narayandas Shreeram Somani Vs. Sangli Bank Ltd. (1965) 3 SCR 777=AIR 1966 SC 170=(1965) 35 Comp Cas 596)
j) State of Maharashtra and Anr. Vs. National Construction Company, Bombay and Anr. (1996) 1 SCC 735)
11. It is settled that the judicial interference in the matter of enforcement of bank guarantee is quite limited. However, it is subject to the exception of fraud of an egregious nature and where irretrievable injury and irretrievable injustice would occur and where the bank guarantee was not invoked strictly in terms and tenor of the bank guarantee. It is settled, being an independent commercial contract, that the terms of the bank guarantee are required to be complied with in the strictest possible manner. It is required to be interpreted strictly. All the parties are bound by its terms and conditions.
12. The law with regard to the binding effect of terms of PBG is quite settled as is observed in paragraph Nos. 32, 39 and 49, in the Judgment in United Commercial Bank (Supra). The strict compliances of the terms of PBG is therefore, mandatory. The same view is further reiterated in Hindustan Construction Co. Ltd. (supra) in paragraph No.9, which reads thus:
9. What is important, therefore, is that the bank guarantee should be in unequivocal terms, unconditional and recite that the amount would be paid without demur or objection and irrespective of any dispute that might have cropped up or might have been pending between the beneficiary under the bank guarantee or the person on whose behalf the guarantee was furnished. The terms of the bank guarantee are, therefore, extremely material. Since the bank guarantee represents an independent contract between the bank and the beneficiary, both the parties would be bound by the terms thereof. The invocation, therefore, will have to be in accordance with the terms of the bank guarantee, or else, the invocation itself would be bad.
13. The Respondent Bank, in reply dated 18 January 2016, in support of the Appellant also averred as under:
7. I say that as per the terms and conditions of said Performance Bank Guarantee, Allahabad Bank has irrevocably and unconditionally undertaken to pay the guaranteed amount on invocation of said Guarantee to the beneficiary (Contractor) GVK Projects and Technical Services Limited. Eventhough, the said letter of invocation has been issued by the Contractor/beneficiary within validity period of the said Bank Guarantee, but the payment was required to be made to Owner-GVK Ratle Hydro Electric Project Private Limited instead of contractor/beneficiary under the Bank Guarantee, which prima-facie appears to be not as per the terms of Guarantee. Meanwhile, this Hon'ble Court was pleased to order and direct Allahabad Bank not to make any payment to Defendant No.2 and/or 3 as per letter of invocation dated 13/1/2016, therefore it has been put on hold. I further say that Bank is ready and willing to discharge its liability under the said Bank Guarantee as per the order of this Hon'ble High Court by clarifying the aforesaid aspects in order to avoid further complicity in the matter.
(Emphasis supplied)
14. The submission is made that the invocation of bank guarantee was not in terms of PBG and specifically when; (a) the payment was required to be made not to the beneficiary-the Contractor but, to the Owner-GVK Ratle; (b) there was no claim or demand made earlier, except the bank guarantee communications to the Bank through the invocation letter; (c) no claim or demand made to the Appellant and/or any specific notice was given, except purported letter in question; (d) The Bank is, therefore, under obligation to honour the bank guarantee in accordance with the terms only. In the present case, the Bank supports the case of the Appellant.
15. It is also submitted that, PBG was for the due performance of the respective obligations under the contract. GVK Projects and GVK Ratle, have abandoned the project, based upon the letters, therefore, there was no question of one-sided performance of the contract by the Appellant, as there was no failure of performance, such invocation without proper demand and claim are stated to be a case of fraud. It is submitted that, this is an exceptional case, where the judicial intervention is permissible.
16. The learned Senior Counsel appearing for Respondent Nos. 2 and 3, however, countered the above submissions and supported the reasons given by the learned Single Judge. The counter submission of the learned Senior Counsel was that the invocation was proper and the same was as per the terms and conditions of PBG. The term payment to the contractor , needs to be read and referred as on demand, the payment to the person directed. In the present case, the proceeds was requested to be deposited in the account of GVK Ratle-owner. There was intentional suspension of work and/or abandonment of contract by the Appellant. The Appellant was responsible for the disturbance at site by not engaging the local persons for the project. The correspondence/communications, itself show that the demand was raised from time to time. PBG, being an independent contract and there is no irretrievable injustice and considering the scope of Appeal against such ad-interim order, the Appeal is required to be dismissed. Objection was raised regarding jurisdiction also.
17. The Bank's counsel, however, without touching to the aspects of breach of terms of main contract, has supported the Appellant by submitting that the invocation was not in terms and conditions of PBG, as the payment/proceeds was directed to be made to the owner -GVK Ratle, instead of the Contractor beneficiary GVK projects. It is also submitted that PBG is not negotiable document/instrument. The terms and conditions of PBG are required to be followed strictly. The bank is under obligation to discharge its liability under those terms only, specifically when, there is no case of any assignment of the PBG. The Bank's counsel restricted the argument saying that the bank is liable to make the payment as per the terms, only to the contractor, beneficiary-GVK Projects.
18. So far as the aspect of jurisdiction is concerned, as the Suit is pending so also the Notice of Motion and as the Appeal is against rejection of ad-interim order, therefore, in view of Section 9A of the Code of Civil Procedure (for short, CPC ), and as parties have proceeded by consent on the issue of ad-interim relief and as this Appeal is arising out of the same, we are leaving the issue of jurisdiction open for the Court to decide at the appropriate stage. Therefore, by consent, we are proceeding to deal with the Appeal on the restricted issue of protective reliefs.
19. Various contentions and counter contentions are raised by the learned Senior Counsel appearing for the parties with regard to the nature and the merits and the breaches of main contract including the reasons behind the invocation of PBG. Whether there was demand/claim raised before invocation? Whether PBG, in the facts and circumstances, was invoked in breach of the main contract? Whether there was default and/or non-cooperation from the owner and/or the contractor? Whether there was any case of alleged fraud or irretrievable injury? Whether the Appellant suspended the work/project without reasons and/or abandoned the project? Whether the case of conflict of various kinds, including the stated disturbances and the problem with the Government itself? Whether there was exchange of correspondence between the owner-contractor with the Government to proceed and/or not to proceed with the project? Whether no communication was addressed to the Appellant to stop the work inspite of above background? These disputed questions and the facts required to be decided finally and/or concluded at appropriate stage, apart from the issue of maintainability of the Suit. For the purpose of deciding the Appeal against such ad-interim order, at this stage, the reasoning given by the learned Single Judge dealing with the factual aspects, covering the submissions and the issues so raised arising out of the contract terms and the conclusion so drawn in para 50, in our view, needs no interference. However, it will be subject to final decision of the Notice of Motion and/or the Suit. Para 50 of the impugned Judgment is reproduced as under:
50. Therefore, in my view, L and T has not produced any material to show in support of its case that GVK Projects and GVK Ratle have or had abandoned the project. L and T cannot be allowed to only rely on newspaper articles which have no evidentiary value. L and T has therefore failed to establish that GVK Project seeks to fraudulently invoke the Bank Guarantee despite GVK Project and GVK Ratle themselves having abandoned the project.
20. We are required to consider the legal submission so made and raised with regard to the invocation of PBG in the present case, whereby, the directions are issued to deposit the proceeds in the account of third person/ GVK Ratle , instead of GVK projects . That is to be considered on the basis of the plain reading of the terms and conditions of PBG.
21. The main clause of PBG, is as under:
NOW THEREFORE we, the Bank, do hereby irrevocably and unconditionally guarantee and undertake to pay the Contractor without any deductions, set off or counter claim whatsoever, immediately on demand any or, all monies claimed by the Contractor to the extent of and upto Rs. 98,35,00,000/- (Rupees Ninety Eight Crores Thirty Five Lakhs) as aforesaid at any time upto 31st December, 2019 without any demur, reservation, contest, recourse or protest and/or without any reference to the Sub-Contractor including without disputing whether any sums are payable under the terms of the Sub-Contract or not. Any such demand made by the Contractor on the Bank shall be conclusive and binding notwithstanding any differences between and among the Parties or any dispute pending before any court, tribunal, arbitrator or any other authority, and be a conclusive proof of the amount due and payable under this Bank Guarantee."
(Emphasis supplied)
22. The relevant portion of invocation letter dated 13 January 2016 addressed to the Chief Manager, Allahabad Bank, by GVK Projects (the contractor), invoking PBG, reads thus:
" .................
We would like to invoke and encash the above PBG and is herewith enclosing the Original Bank Guarantee with a request to arrange to transfer the proceeds through RGTS to the account as per the bank details given below.
Name of the Company : GVK Ratle Hydro Electric Project Private Limited.
....
23. The observations made by the learned Single Judge with regard to PBG and the law, revolving around the same in paragraph Nos. 51 to 53 also need no interference. What is missing, in our view, in the present case is the plain reading and interpretation of the clauses of PBG terms. This being the question of interpretation of the clause/clauses, as no evidence is necessary, and as noted, no specific finding is given on the said clause/clauses, we are inclined to decide the issue so raised by the learned Senior Counsel appearing for the Appellant and also supported by the learned counsel appearing for the Bank that direction to arrange to transfer the proceeds through RTGS to the Account of GVK Ratle, is not as per the terms and conditions of PBG, so reproduced above.
24. There is no issue that once PBG is invoked, subject to the objection even if any, and/or subject to findings given by the Court, based upon the terms and conditions and in view of settled position of law, unless the case falls within the exceptional circumstances, the Bank is under legal obligation to encash PBG and transfer the proceeds to the Account as per PBG. The Bank undertaking, even if any, to make the payment, therefore, as contended by the learned Counsel appearing for the Appellant and the Bank, that the amount/proceeds needs to be transfer only in the name of the beneficiary-GVK Projects, without any deduction, set off and/or counter claim and/or any demur, reservation and/or contest, any dispute pending and even agitated, should not be the reason not to honour PBG, once it is invoked, but it is subject to the binding terms of the PBG.
25. The plain reading of the Bank's terms and conditions, therefore, have created legal obligations upon the Bank to transfer the proceeds, but only in the account of the beneficiary-GVK Projects and not in the account of GVK Ratle, as instructed and/or mentioned in communication dated 30 July 2016. All are bound by such terms and conditions of the commercial document like PBG. The learned Senior Counsel appearing for Respondent No.s 2 and 3, based upon the Judgments so cited and as read and referred, is only able to justify the position of law with regard to the general PBG conditions.
26. The submission is also made that this case does not fall within any of the exceptional circumstances. However, in the Judgments so cited and/or read and referred by the Respondents and/or even noted by the learned Single Judge, it nowhere decided the issue raised and/or concluded in the facts like the present case, where in breach of terms of PBG, it is directed to transfer the proceeds in the account of third person. The contractor or the owner, therefore, cannot ask for and/or insist upon the Bank to transfer the proceeds in the account of owner GVK Ratle. PBG conditions, as noted above, have been signed and/or well within the knowledge of GVK Ratle, also. All the parties are bound by the conditions whereby, they have recognized the beneficiaries of PBG, in case of invocation of irrevocable unconditional PBG whereby, the bank undertakes to make the payment.
27. Therefore, in view of above distinguishing features in the present case, the Judgments cited by the learned Senior Counsel appearing for Respondent Nos. 2 and 3 are of no assistance, except with regard to the basic principle of law of PBG and effect of its legal invocation, apart from the obligation of the Bank to transfer the proceeds as per the terms and conditions. The Judgments so cited, itself, support the case that all the parties are bound by the terms and conditions of PBG unless, exception of terms and conditions and/or specific agreements are pointed out whereby, the party agreed to release the amount in the account of third person. In the present case, there is no such case and/or covenant pointed out. There is no such assignment ordered. The submission, revolving around the provisions of the Indian Contract Act and the supporting documents, in our view, is also of no assistance.
28. The Court, therefore, in the case in hand cannot direct the Bank, at this stage, to make the payment as per the letter of invocation, merely because Respondent Nos. 2 and 3 have made their submissions referring to other documents and the cited Judgments on general propositions of law relating to PBG. When the Court needs to interpret the commercial documents like PBG and the plain reading shows the agreed clear terms and conditions, then there is no question of interpretation and/or any direction which has the effect of modifying the terms and conditions by the Court, in the Court proceedings like this. The Court cannot, for the first time, interpret the clauses and/or modify the terms and conditions merely because of the general law of PBG, as settled. On the contrary, these Judgments itself make the position clear with regard to the commercial documents like PBG that the terms and conditions of the documents are required to be strictly followed and complied with by all. After reading the clauses of PBG and the invocation letter so referred above, we are of the view that a case is made out by the Appellant to continue the ad-interim relief dated 14 January 2016, already granted by the learned Single Judge.
29. Resultantly, the Appeal is allowed in the following terms:
a) The impugned order dated 29 February 2016 is set aside.
b) The ad-interim order dated 14 January 2016, passed by the learned Single Judge in Notice of Motion (L) No. 120 of 2016 to continue till the disposal of the Notice of Motion.
c) Hearing of the Notice of Motion (L) No. 120 of 2016 is expedited.
d) In view of the disposal of the Appeal itself, nothing survives in the Notice of Motion (L) No. 732 of 2016 and the same is accordingly disposed of.
30. After pronouncement of the Judgment, Mr. Farid Karachiwala, learned counsel appearing for Respondent No. 2 and 3 states on instructions that Respondent No. 2 is desirous of withdrawing the letter of invocation and invoking the PBG afresh and that it may be accordingly recorded in this order. At this stage, we do not deem it necessary to record the statement and we express no opinion on this aspect. Respondent No. 2 is free to take appropriate steps as may be adviced.