Maytas Infra Limited Vs. Utility Energytech and Engineers Pvt.Ltd. and anr. - Court Judgment

S.C. Dharmadhikari, J.

1. Appeal admitted. Respondents waive service.

2. By consent of parties, heard finally at the stage of admission itself.

3. This appeal under Clause 15 of the Letters Patent read with Section 37(1)(a) of the Arbitration and Conciliation Act, 1996 is directed against the order of learned Single Judge dated 29th April 2009 in Arbitration Petition Lod. No. 366 of 2009. This Arbitration Petition was filed by the Appellant (Original Petitioner) invoking powers of the Learned Single Judge under Section 9 of the Arbitration and Conciliation Act (Act for short).

4. From the record it appears that the learned Judge initially granted an ad-interim ex parte order on 17th April 2009 in favour of the appellant original petitioner. This ad-interim order was continued after the respondent No. 1 (contesting respondent) appeared and sought time. Thereupon, the Arbitration Petition was placed before the learned Single Judge and he considered the request made by the appellant for continuation of the ad- interim order so also for vacating it made by the first respondent. He delivered the impugned order by holding that the appellant petitioner is not entitled for to ad-interim reliefs in terms of prayer Clauses (f), (g) and (h) of the subject Arbitration Petition. In these circumstances, he declined the request to confirm the ad-interim order and proceeded to vacate the same. This order of the learned Single Judge is challenged in this appeal.

5. It is pertinent to note that at the request of the appellant the ex parte order dated 17th April 2009 came to be continued by the learned Single Judge to enable the appellant to challenge his order. Accordingly, the subject appeal was preferred and it came to be placed before a Division Bench in the summer vacation. The Division Bench passed an order on 15th May 2009 in the following terms:

1. Heard learned Senior Counsel appearing for the appellant and the learned Senior Counsel appearing for the first rrespondent. The learned Single Judge has declined to grant ad-interim relief as regards invocation of Performance Bank Guarantee. The arbitration petition under Section 9 of the Arbitration and Conciliation Act, 1996 is kept pending for final disposal at the admission stage. In the present appeal, the petitioner in the said petition under Section 9 has impugned the order of learned Single Judge by which the learned Single Judge declined to grant ad-interim injunction.

2. Considering the controversy involved, till the appeal is placed before the regular bench after vacation, it is necessary to ensure that the amount of bank guarantee is brought before the Court. Place the appeal before the regular Bench after vacation. In the meanwhile, the second respondent (ICICI Bank) is directed to deposit with this Court the guarantee amount within a period of one week from today.

6. Aggrieved and dis-satisfied with this part of the order, the beneficiary respondent No. 1 initially sought review / modification of the order of the Division Bench and subsequently approached the Supreme Court. The Supreme Court passed an order by which, although it did not entertain the Special Leave Petition, it directed this Court to dispose of this appeal by an expeditious day to day hearing. After the order of the Supreme Court was brought to our notice, we proceeded to place the appeal for admission with a clear understanding of the parties that it would be disposed of finally at that stage itself. Both sides agreed to this course of action. Accordingly, with consent of the Counsel on either side, we heard this appeal on the specified dates. We concluded the hearing on 18th July 2009 and reserved the Judgement.

7. The facts leading to the filing of the petition under Section 9 of the Act are few and simple. The appellant is a company incorporated under the Companies Act and engaged, inter alia, in undertaking infrastructure, turn key and construction projects. The first respondent is private limited company incorporated under the provisions of Companies Act, 1956 and inter alia engages itself in procuring engineering and construction work. This in short would be referred to as EPC contract. Second respondent is a bank who issued a performance guarantee in favour of the first respondent and at the instance of the appellant before us.

8. By an agreement dated 19th April 2007, hereinafter referred to as the Concession Agreement, the National Highway Authority of India (NHAI for short) awarded a concession contract to one M/s. SU -TOLL Road Pvt. Ltd, a company incorporated under the Companies Act, 1956. This concession contract was awarded for undertaking the design, engineering, financing, procurement, construction, operation and maintenance of the SALEM ULUNDURPET Section. (Kms.0.313 to Kms.136.67) of National Highway 68 in the State of Tamil Nadu. The NHAI awarded this contract under the National Highway Development programme on Build, Operate and Transfer basis (BOT).

9. By an agreement dated 31st January 2008 (hereinafter referred to as EPC Agreement), M/s.SU-TOLL in turn awarded work of EPC of the project on a fixed price lumpsum turn key basis to first respondent. The first respondent divided the EPC work in two phasis, i.e. Phase -I (Kms.0.313 to Kms.62.250) and Phase -II (Kms.62.250 to 136.670).

10. Respondent No. 1 issued a Letter of Intent (LOI) dated 12th December 2007 in favour of the appellant for procurement and construction of TN-06 Road at an initial contract price of 39,39,90,000/-, with the term sheet attached thereto as Annexure I. This letter of intent was accepted by the appellants. Pursuant thereto, the appellant and first respondent executed a construction agreement dated 19th February 2008 in respect of Phase I of the project. This Phase-I for construction of existing carriage way from Kms.0.313 to Kms.62.250 on Salem Ulundurpet section of National Highway 68 in the State of Tamil Nadu was the contract/ project work. The appellant was termed as construction contractor in the petition under Section 9 on the basis of the Clauses in the construction agreement, a copy of which was annexed as Annexure B thereto. Copy of Letter of Intent is Annexure A.

11. It is not necessary to refer to the scope of the work save and except stating that it included performance and execution of the project by the appellant. The procurement, construction and completion of project Highway on Item Rate basis in strict compliance with the design requirement and all the terms and conditions of the agreement in a timely manner and to the complete satisfaction of the first respondent. This obligation is set out in Clause 2 of the Construction Contract. Reference is then made to Clause 3.5 of the Construction Contract, appointment of Engineering Consultant to undertake and perform the duty, works, service and activities set forth in the concession agreement. It is alleged that the first respondent was to issue a notice to proceed (clause 4) prior to handing over of the project site. In case the first respondent failed to issue notice to proceed, Clause 4 provided that the notice shall be implied to have been issued on the 31st day from the date of LOI i.e. 12th January 2008. This was reckoned as project start date. Clause 5 of the Construction contact obliges first respondent to hand over to the appellant, project site in accordance with the project complete schedule or otherwise provided to the SU-TOLL by NHAI under the Concession agreement. Clause 9 provided the contract price. Several clauses of the contract have been referred to in the Arbitration Petition and primarily to support the allegations and averments that the construction contract provides for Force Majeure, Events of Default and Termination clause so also the Arbitration procedure contemplated by Clause 45.3 and our attention is invited to Clause 48.4 of the construction contract which vests the courts at Mumbai with jurisdiction. It is then stated in the petition that Schedule A to the construction contract prescribed the project highway and details of the project set out in Schedule H of the construction contract, under which contract the site handing over to the appellant is provided for. This was to be immediately upon the first respondent receiving the same from NHAI. Schedule I to the construction contract provides for working drawings. It is then stated that first respondent agreed to advance to the petitioner a sum of Rs. 19,69,80,701 on 15th February 2008 and identical sum on 25th/26th and 27th June 2008 towards mobilisation advance. It is alleged that both advances were delayed. The terms of contract contemplated two bank guarantees. The petitioners were obliged to furnish them and hence, they furnished the mobilisation advance, bank guarantee to respondent No. 1 for an aggregate sum of Rs. 39,39,98,000/-and Performance Bank Guarantee. It is common ground that the Mobilisation Advance Bank Guarantee has been encashed. We are concerned with the performance bank guarantee in the abovesaid sum which has been furnished by the second respondent in the aforesaid sum.

12. The principal allegation in the arbitration petition is that despite mobilisation of required machinery, manpower and material at site and making all preparations, the first respondent did not issue the requisite notice to proceed. It is alleged that by a letter dated 25th February 2008, appellants in continuation of the previous correspondence submitted programme for completion of work. The project land required to be made available to the appellant for execution was handed over in discontinuance lengths mostly in bits and pieces spread all over the project length. These facts were placed on record in letters dated 8th September 2008 and 10th November 2008 by the appellants. They placed on record that project assets as well as basis of the work programme has not been handed over. In these circumstances, the appellants were entitled for extension of time and additional payment.

13. It is alleged in para 11 of the Arbitration Petition that by a letter dated 6th December 2008, the first respondent admitted considerable slippage in the original programme submitted by the appellant. The first respondent desired to have realistic programme and requested the appellants to submit revised construction programme for balance works taking into account the tentative dates of 15th January 2009 for drawing to be issued as good for construction and balance land to be handed over. It is alleged that the construction drawings were not provided to the appellants as the first respondent has not furnished finalised and approved data, projects assets, for which the works were to be carried out, were not handed over, principally being the land.

14. Since great emphasis has been placed on Annexure I (letter addressed by M/s.Su-Toll to Project Director, NHAI dated 8th December 2008) to the Arbitration Petition, it would be proper to reproduce the said letter:

This refers to the interim application submitted to your office vide letter referred above wherein extension of time, for delays as on 15th May 2008 was requested. The causes for delay were beyond the control of the concessionaire and the concessionaire was unable to overcome such activities despite the exercise of due diligence and reasonable efforts, skill and care and thereby incurring huge expenditure. The said delays have had a Material Adverse Effect on the Project, as in terms of Article 29.1 of Concession Agreement.

Further in continuation to our first interim application, we submit herewith second interim application for extension of time in lieu of delays which have occured beyond 15th May 2008 and till 15th October 2008. These delays are beyond the reasonable control and are not arising out of the fault of the Concessionaire. The complete status of delay events arising from the commencement date can be broadly classified into the following categories:

1] Delay in (a) handing over of Additional land of the Project Highway; (b) clearance of Forest area and (c) appointment of Competent Authority for land acquisition.

As provided in the Concession Agreement, the handing over of Additional land should have been done progressively and should have been completed on or before 18th July 2008. The present situation on land acquisition is still in 3D stage and as of now not even a single meter of Additional land has been handed over to us. In the interest of project, extraordinary efforts have been taken by the concessionaire and work has been taken up in some of the Project Highway portions. However, a majority of Additional Land is yet to be made available to the concessionaire.

2] Delay in enabling the shifting/ removal of various utilities.

3] Delay in providing valuation of trees in the existing carriageway and permission to take out the cutwood.

4] Delay in decision on change of scope on the following:

(a) Minor Bridges at Km.88.937 and at Km.129.864;

(b) Major Bridge across River Gomukhi at Km. 102.187

(c) Change of alignment near Talaivasal

(d) Flyover at Km.136.670 and

(e) 12 missing culverts.

5] Delay in signing of MoU for the 3 ROBs in the Project Highway and delay in shifting of lever crossing at Chinnasalem ROB;

6] Delay in finalisation of Toll Plaza location

7] Delay in removal of existing structures/ obstructions, shifting of service utilities in the Additional land.

8] Delay in appointment of mobilisation of the independent Consultant

9] Increased quantities of Well Filling found between the toe of proposed embankment and proposed ROW

10] Provision of Granular fill on both sides of pipe culvert for 2m width.

All that is stated above has resulted in some futile work in the project highway and the concessionaire is not in a position to proceed ahead with the construction works as per Schedule H of Concession Agreement. This situation shall entail additional construction period for the Project Highway and thereby postponement of the Scheduled Commercial Operations date of the Project. It may be appreciated that the same was not envisaged at the time of entering into the Agreement.

The above acts or events protect/deprive of possession of the Project Highway and rights of the Concessionaire or of the Contractors in performing their obligations as per Article 29.1 of Concession Agreement.

As per Article 29.12 of Concession Agreement, the Concessionaire has reported details of nature and extent of each Force Majure event. The concessionaire has also provided estimated duration and probable effect on performance of its obligations under this Concession Agreement regularly. Further, the Concessionaire has through Monthly Progress Reports provided, to NHAI, details regarding measures being taken to alleviate the impact periodically.

The detailed explanatory note on all the above events have been given in the Annexure for your ready reference.

The quantum of delay is to the tune of 9 months as on 15th October 2008 and some of these delays are of continuing nature. The same shall further affect the Project completion schedule adversely for which the concessionaire reserves its right to claim extension of time and further extension (if any) along with associated cost/ compensation for delays caused for reasons which are beyond the reasonable control and not arising out of the fault of the Concessionaire.

We continue to notify to you that due to the above mentioned reasons and circumstances, additional time would be required to complete the project works. Thus pursuant to Article 14.5 (d) of Concession Agreement and considering the postponement/ deferment of construction works for the reasons not attributable to the Concessionaire, NHAI shall extend the Project Completion Schedule, the Scheduled Project Completion Date and the Concession Period. This application is interim in nature as the aforementioned delays are having a continuing effect. Therefore, the Concessionaire reserves its right to submit further extension of time until actual delay is ascertained.

Therefore in terms of the Concession Agreement and as per the enclosed annexure, the concessionaire hereby requests to kindly make an interim extension of Appointed Date by a period of 9 months thereby extending the same to 15th October 2008, which will further result in extension of Scheduled Project Completion date to 15th October 201. Similarly the Concession period will also have to be extended to a date beyond 15th October 2033 (direct delay) as shall be intimated shortly after calculating the imact of the said delay on NPV (Net Project Value) of the Project.

15. It is then alleged that by letter dated 15th December 2008 in response to several letters from the first respondent, the status of several works and problems were placed on record. It is alleged that all problems are attributable to the first respondent as the appellant petitioner has carried out all its obligations. The first respondents letter dated 15th December 2008 has also been referred to and it is contended that the code was finally provided by a letter dated 9th December 2008 by the first respondent and they requested he petitioner appellants to take early action in that regard. After making reference to this letter, it is contended in the petition that the appellants have repeatedly placed on record that there has been enormous delay and time lapse to settle the problems which is affecting completion of the project, the appellants suggested that the land dispute issues between them and the first respondent be referred to arbitration. The sequence of events have been recorded in a letter dated 28th February 2009, 7th March 2009 and 31st March 2009. Thereafter, reference is made to meetings held on 2nd April 2009. it appears that the first respondent addressed a letter dated 3rd April 2009 and issued GOOD FOR CONSTRUCTION drawings for projects at three locations. It is undisputed that the appellants have since the construction contract raised several bills and received payments, details of which are set out in Annexure R. The first respondent granted approval of bar bending schedule for box culverts at four locations.

16. However, it is alleged that suddenly the first respondent invoked the mobilisation bank guarantee and encashed it without adjusting the amounts already recovered from the appellants. Thereafter, a letter was addressed by the first respondent alleging lapse on the part of the appellant. Thereafter, the first respondent proceeded to issue a termination notice and ultimately, apprehending that the performance bank guarantee would also be invoked that the Arbitration Petition was filed.

17. The only allegations material for the purpose of the present controversy are to be found in paras 29 and 30 of the Arbitration Petition, which read thus:

29. The petitioners state and submit that the construction contract stipulates and provides for the circumstance in which the respondent No. 1 can exercise their rights in respect of the mobilisation advance, bank guarantee and/or the performance guarantee. The respondent No. 1 has in contravention of and in contrary to the said terms and conditions have encashed the mobilisation advance bank guarantee. The petitioners submit that the acts and conduct of the respondent No. 1 is fraudulent. The invocation and encashment of the mobilisation advance bank guarantees by the respondent No. 1 is contrary to the terms of the construction agreement and the mobilisation advance bank guarantee. It is further submitted that the respondent No. 1 have no right to invoke and/or encash the performance bank guarantee and any such act on their part would be fraudulent, contrary to the terms and conditions under the construction contract and the performance bank guarantee as also cause irretrievable injustice to the petitioners. The petitioners state and submit that there are special equities in favour of the petitioners.

30. The petitioners state and submit that ex parte ad- interim orders restraining the respondent No. 1 from invoking and receiving any monies under the performance bank guarantee ought to be passed by this Court, as any notice given to the respondent No. 1 would result in them continuing with the fraudulent and dishonest conduct by invoking the performance bank guarantee before the present petition is taken up for hearing of ad-interim reliefs. The respondent No. 1 have behaved fraudulently, illegally and unlawfully in the past and there is every likelihood that they would fraudulently and dishonestly invoke the bank guarantee thereby taking steps to render the present petition infructuous. Thus, this Court be pleased to pass orders as prayed for without notice to the respondent No. 1.

18. It is this arbitration petition, which was placed before the learned Single Judge for urgent ex-parte reliefs and the events recorded above have taken place, resulting in the impugned order being passed and refusing appellants request of restraint on encashing the performance bank guarantee issued in favour of first respondent beneficiary. It is worthwhile noting that no reply was filed by the first respondent to the Arbitration Petition and the matter proceeded merely on denials. The impugned order proceeds on the basis that the pleas raised by the appellants pertain to the disputes under the Parent/ Underlying contract. These are matters which can be raised during the arbitral proceedings and they were not relevant as far as the request made by the appellant is concerned. Learned Judge has held in para 12 of the impugned order that the contractual clauses cannot be read into the bank guarantee. Both documents are independent, though such bank guarantees are issued after execution of the contract in question. Learned Judge held that the parties fully understood the clauses of the contract and furnished the bank guarantees which are unconditional and irrevocable so also on demand. They are binding on parties and, therefore, the first respondent is entitled to invoke the bank guarantee. Learned Judge held that the delay in handing over the site or drawings or compliance on the part of the first respondent cannot be gone into at this stage. He has referred to the contentions in that behalf. Learned Judge has held that invocation of bank guarantee cannot be restrained as the appellant petitioner has not made out a case of any fraud and irretrievable injustice so also special equities. Both the contracts are independent. The performance bank guarantee which is unconditional and irrevocable, therefore, can be invoked.

19. It is this conclusion, which is subject matter of challenge in this appeal.

20. Mr. Seervai, learned Senior Counsel appearing for appellant contended that the impugned order is erroneous and illegal. He submits that the learned Judge has not held that no prima facie case is made out by the appellant nor has he held that the balance of convenience is not in favour of the appellant. Learned Judge has also not expressed any view with regard to irreparable loss and injury. Mr. Seervai submits that this case is distinguishable from the other cases and decisions which have been referred by the learned Judge. Mr. Seervai submits that in this case, invocation of bank guarantee was fraudulent. He submits that fraud is apparent because the bank guarantee in question is a performance bank guarantee. That is issued and furnished to guarantee due performance of the terms and conditions of the Parent Contract. The bank guarantee itself refers to due performance of the contractual terms and conditions. Therefore, it is not correct to hold that this bank guarantee is distinct and independent of the underlying contract between the parties. He submits that if the bank guarantee itself refers to all the three contracts executed for the subject project and makes it clear that the first respondent was to make available the stretches of land for construction of the Highway and only thereupon the work commences, then, there is no question of the performance bank guarantee being invoked. This invocation, even before the work could really commence is fraudulent. More so, in the light of the communication addressed by M/s.Su-toll to NHAI and once the appellant petitioner is not responsible for the delay in commencing of the contract work, then, invoking the performance bank guarantee was fraudulent and irretrievable injustice has been caused to the appellant petitioner by the same being invoked in the teeth of the demand for extension raised by M/s.Su-toll. The correspondence between M/s.Su-toll and NHAI was to the knowledge of the first respondent. They have acceded to the request of the appellants on that basis and postponed the date of start of project. They have in the correspondence through out admitted the delay in commencement of work. For all these reasons special equities arise in favour of the appellant petitioner and invocation of the performance bank guarantee ought to have been restrained by the learned Single Judge.

21. In any event, according to Mr. Seervai, the invocation should not have been permitted by the learned Judge after the appellant petitioner raised all pleas based on the documents and correspondence exchanged between parties. If there was no reply filed to the Arbitration Petition, then, prima facie, the appellant petitioner has made out a case for injunction against encashment of the bank guarantee. Learned Single Judge has not discussed any of the aspects much less whether prim facie case has been made out or not. Learned Judge was duty bound in law to consider the pleas raised in the arbitration petition and record a finding as to whether performance bank guarantee is indeed an independent and distinct contract and must be seen separately from that of the underlying contract so also the obligations thereunder. None of these aspects have been considered. No findings are recorded and hence, the impugned order is unsustainable in law.

22. Mr. Seervai has relied upon a decision of the Supreme Court reported in : 1999 (8) SCC 436 (Hindustan Construction Company Ltd. v. State of Bihar) and : 1969 (3) SCC 120 (Nathulal v. Phulchand) and more particularly the principle that if under the terms of the contract the obligations have to be performed in a certain sequence, one of the parties to the contract cannot require compliance with the obligations of the other party without in the first instance performing his own part if under the contract it is to be performed by it earlier. Mr. Seervai was at pains to emphasis that this principle applies squarely to this case because until and unless the land was made available under EPC contract by the first respondent so also M/s.Sutoll not complying with its own obligation and seeking extension from NHAI, then, no question arises of bank guarantee being invoked and its invocation is fraudulent. Mr. Seervai is laying great emphasis on the decision of one of us (Honble Chief Justice) reported in : 2006 (1) Arbitration Law Report 321 (Delhi). (Continental Construction Ltd. and Anr. v. Satluj Jal Vidyut Nigam Ltd). He submits that this is case of performance bank guarantee and the view taken by Delhi High Court in this case is squarely applicable to the present case.

23. On the other hand, Mr. Chagla, learned Senior Counsel appearing for first respondent beneficiary submits that the arguments of the appellants revolve around the contractual disputes. The basic and fundamental principle which is applicable to Bank Guarantees is that it is an independent contract. The obligations therein are not dependent upon the parent contract. It may be that the parent contract is referred to in the bank guarantee but that does not mean that the invocation of bank guarantee is not permitted unless parties fulfill their obligations under the parent contract. He submits that the appellants are deliberately trying to link the obligations and compliances under the parent contract with that of the bank guarantee. In the instant case, the guarantee may be for due performance of the obligations, but the performance guarantee is in the form of a Bank Guarantee. The bank guarantee being independent, must be seen in its entirety and picking and choosing one sentence or a clause therein, would not be proper. Inviting our attention to the settled principles for restraining encashment of bank guarantee, Mr. Chagla submits that the subject bank guarantee is unconditional, unequivocal and there is nothing therein, which would indicate that invocation thereof, is not permissible. He submits that the invocation is in terms of bank guarantee and, therefore, the question of restraining the first respondent from encashing the same does not arise.

24. Mr. Chagla has then pointed out that the appellant petitioner did not approach the Court with clean hands. The appellant petitioner has suppressed from the Court several important letters, which would go to show that the petitioner appellant failed to comply with the terms regarding due performance of the contract obligations. It is not as if some letter addressed by M/s.Su-Toll is indicative of the fact that the petitioner appellant is not in default. On the other hand, it has been pointed out by these letters that the petitioner appellant is in default and has failed to rectify the defects and deficiencies despite opportunities granted from time to time. In this behalf, he invites our attention to the letter dated 24th January 2009 addressed by the first respondent to the Project Head of the petitioner appellant. He, thereafter, invites our attention to another letter dated 27th January 2009 in which a reference has been made to 14 letters which have been addressed by the first respondent to the petitioner appellant prior to this communication. It is clear from these letters, according to Mr. Chagla, that there is no progress and the same has been noted in the earlier correspondence. The project was put on hold from January 2009. Our attention is also invited to the letters dated 28th February 2009 wherein the first respondent pointed out to the appellant petitioner that despite releasing an amount of Rs. 58.58 Crores, includes mobilisation advance, the work at site is not adequate and sufficient. It is the petitioner appellant who has been requesting for extension of time and in that behalf our attention is invited to the letters dated 9th and 19th March 2009. Mr. Chagla submits that all these letters have been suppressed from this Court and, therefore, the appellants petitioners are not entitled to any equitable and discretionary reliefs. That apart, according to him, these letters would indicate that neither there is any fraud nor any irretrievable injustice and special equities in the matter. Mr. Chagla submits that the pleadings in that behalf are vague and there is absolutely no substantiation even prima facie, of the allegations. Therefore, the learned Single Judge was right in rejecting the request for ad-interim / interim reliefs. This being the position, petition was rightly rejected. The appeal, therefore, also must be dismissed.

25. Mr. Chagla has relied upon following decisions:

(a) : (2006) 2 S.C.C. 728 (BSES LTD. (Now Reliance Energy Ltd) v. Fenner India Ltd. And Anr.;

(b) 2007 (6) Bom.C.R. 422 (Global Aviation Services Pvt. Ltd. v. Malaysia Airlines System Berhad and Anr.)

(c) : 2008 (1) S.C.C. 544 (Vinitec Electronics Pvt.Ltd. v. HCL Infosystems Ltd.)

(d) Appeal No. 332 of 1991 with Appeal (Lod) No. 278 of 91 A/w. connected appeals and Motions decided on 22nd April 1991 (P.D. Desai, C.J. And K. Sukumaran, J).

26. With the assistance of the learned Senior Counsel appearing for parties, we have perused the impugned order, the Arbitration petition on which the same was made and the subject bank guarantee. Before proceeding further, we must consider the bank guarantee in this case. The bank guarantee in this case is dated 5th March 2009. The same reads thus:

5. NOW THEREFORE, the Bank undertakes the pecuniary responsibility of the Construction Contractor to the EPC Constractor for the due performance of the Contract and for the payment of any money by the Construction Contractor to the EPC Contractor and hereby issues in favour of the EPC Contractor this Guarantee in the amount of INR. 19,69,95,000/- (Rupees Nineteen Crores Sixtly Nine Lakhs and Ninety Five Thousand Only).

6] The Bank for the purposes hereof unconditionally and irrevocably guarantees and undertakes as a direct responsibility, to immediately pay to the EPC Contractor on demand any amount of amounts (by way of one or more claims) not exceeding in the aggregate INR.19,69,95,000/( Rupees Nineteen Crores Sixty Nine Lakhs and Ninety Five Thousand Only) without any demur, reservation, recourse, contest or protest and/or without reference to the Construction Contractor and without the EPC Contractor needing to provide or show the Bank grounds or reasons for such demand for the sum specified.

7] Any such demand made by the EPC Contractor on the Bank shall be conclusive and binding, notwithstanding any difference between the EPC Contractor and the Construction Contractor or any dispute pending before any court, tribunal, arbitrator or any other authority. The Bank undertakes not to revoke this Guarantee herein contained and this Guarantee shall continue to be enforceable until its expiration.

8] The decision of the EPC Contractor as to whether the Construction Contractor has fulfilled its obligation or not shall be binding on the Bank. The Bank acknowleges that any such demand by the Concessionaire of the amounts payable by the Bank to the EPC Contractor shall be final,binding and conclusive evidence in respect of the amounts payable by the Construction Contractor to the EPC Contractor.

9] The Bank also agrees that the EPC Contractor at its option shall be entitled to enforce this Guarantee against the Bank as a principal debtor, in the first instance without proceeding against the Constructor Contractor and notwithstanding any security or other guarantee that the EPC Contractor may have in relation to the Construction Contractors liability.

10] The bank hereby waives the necessity for the EPC Contractor to demand the aforesaid amounts or any part thereof from the construction contractor and also waives any right the Bank may have of first requiring the EPC contractor to use its legal remedies against the construction Contractor, before presenting any written demand to the Bank for payment under this Guarantee.

11] Except as provided herein, the Banks obligations under this guarantee shall not be reduced by reason of any partial performance of the Contract. The Banks obligations shall not be reduced by any failure by the EPC contractor to timely pay or perform any of its obligations under the Contract.

27. From a perusal of the same, it is apparent that the bank guarantee refers to the first respondent as an EPC contractor. It further refers to the fact that the first respondent has entered into a Contract with the appellants who are the construction contractors and the construction contractor has agreed to furnish an unconditional and irrevocable bank guarantee for an amount which is 5% of the contract price for timely, faithful and successful execution of the contract. The first respondent has agreed to accept this bank guarantee and, therefore, the second respondent bank undertook the pecuniary responsibility of the construction contractor to the EPC contract, for due performance of the contract, for the payment of any monies by the construction contractor to the EPC contractor and it is in that context that the bank guarantee has been issued. If Clause 6 of this bank guarantee is perused, it is clear that it is unconditional and irrevocable. It is the direct responsibility of the second respondent to immediately pay to the first respondent on demand any amount or amounts without any demur, reservation, recourse, contest or protest and/or without reference to the construction contract and without reference to the EPC contractor needing to provide or show the bank grounds or reasons for such demand for the sums specified. It is very clearly stipulated that any demand made by the first respondent on the bank shall be conclusive and binding, notwithstanding any difference between the EPC contractor and the construction contractor or any pending dispute before any court, tribunal, arbitrator or any other authority. Clause No. 8 takes care of the other aspect viz., the decision of the first respondent as to whether the appellants have fulfilled their obligations or not, shall be binding on the bank. The bank acknowledges that any such demand by the concessionaire of the amount payable by the bank to the EPC contractor shall be final, binding and conclusive evidence in respect of the amounts payable by the construction contractor to the EPC contractors. Even clauses 10 and 11 are indicative of the obligations of the bank and the intention of the parties.

28. When a bank guarantee is unconditional, irrevocable, conclusive and binding, notwithstanding any difference between the contractor and the beneficiary and pendency of any dispute not affecting the invocation of the , then, the settled principles laid down by the Supreme Court must apply. In Mahatma Gandhi Sahakari Sakhar Karkhana v. National Heavy Engineering Coop. Ltd. and Anr. : (2007) 6 S.C.C. 470, a two Judge bench of the Supreme Court speaking through Honble Mr. Justice S.Reddy has reiterated the principles in the following terms:

25. ...It is not necessary for the purpose of disposal of this appeal to notice all the allegations andaverments filed by the respondents except to note that the main thrust of the allegations relate to alleged breach of the conditions of the agreement by the appellant. It was further contended that the bank guarantees were conditional bank guarantees and not unconditional. We have referred to the substance of the allegations only to highlight that no factual foundation as such has been laid in the pleadings as regards the allegation of fraud. In fact there is no serious allegation of any fraud except using the word fraud. It is also not stated as to how irreparable loss would be caused in case the appellant is allowed to encash the bank guarantee. The only two exceptions, namely, fraud and irretrievable injury based on which injunction could be granted restraining encashment of bank guarantee are singularly absent in the pleadings. Once it is held that the bank guarantee furnished by the banker is an unconditional one, the appellant in our considered opinion, cannot be restrained from encashing the bank guarantee on the ground that a serious dispute had arisen between the parties and on the allegations of breach of terms and conditions of the agreement entered between the parties.

29. While distinguishing its earlier view in the decision reported in : (1999) 8 S.C.C. 436, Hindustan Construction Company Ltd. v. State of Bihar a decision on which heavy reliance is placed by Mr. Seervai, the Supreme Court further observed thus in para 28:

30. The learned Counsel in support of his submission relied upon the decision of this Court in Hindustan Construction Co.Ltd. v. State of Bihar. This Court in Hindustan Construction Co. having referred to the terrms of Clause (9) of principal contract between the parties therein came to the conclusion that the bank guarantee specifically refers to the original contract and postulates that if the obligations expressed in the contract, are not ffulfilled by HCCL, the right to claim recovery of the whole or part of the advance mobilisation then alone the bank was liable to pay the amount due under the guarantee to the Executive Engineer. The Court found that the bank guarantee specifically refers to Clause (9) of the principal agreement and it is under those circumstances it came to the conclusion that the amount covered by the bank guarantee becomes payable and the same could be invoked only in the circumstances referred to in Clause (9) of the principal agreement. The bank guarantee executed by the bank in the instant case in favour of the appellant herein does not contain any such clause. Mere fact that the bank guarantee refers to the principal agreement without referring to any specific clause in the preamble of the deed of guarantee does not make the guarantee furnished by the bank to be a conditional one. In the very same judgement this Court observed that:- (SCC p.442 para 9):

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.

31. Once again the controversy pertaining to encashment of bank guarantee and Courts power to restrain the same came up for consideration of the Supreme Court in a latter decision reported in : 2008 (1) SCC 544 (Vinitec Electronics Pvt. Ltd. v. HCL Infosystems Ltd.), wherein learned Judge Honble Reddy, speaking for the bench observed this in paras 11 and 12.

11. The law relating to invocattion of bank guarantees is by now well settled by a catena of decisions of this Court. The bank guarantees which provided that they are payable by the guarantor on demand is considered to be an unconditional bank guarantee. When in the course of commercial dealings, unconditional guarantees have been given or accepted the beneficiary is entitled to realise such a bank guarantee in terms thereof irrespective of any pending disputes. In U.P. State Sugar Corporation v. Sumac International Ltd. This Court observed that:

12. The law relating to invocation of such bank guarantees is by now well settled. When in the course of commercial dealings an unconditional bank guarantee is given or accepted, the beneficiary is entitled to realise such a bank guarantee in terms thereof irrespective of any pending disputes. The bank giving such a guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer. The very purpose of giving such a bank guarantee would otherwise be defeated. The courts should, therefore, be slow in granting an injunction to restrain the realisation of such a bank guarantee. The courts have carved out only two exceptions. A fraud in connection with such a bank guarantee would vitiate the very foundation of such a bank guarantee. Hence, if there is such a fraud of which the beneficiary seeks to take advantage, he can be restrained from doing so. The second exception relates to cases where allowing the encashment of an unconditional bank guarantee would result in irretrievable harm or injustice to one of the parties concerned. Since in most cases payment of money under such a bank guarantee would adversely affect the bank and its customer at whose instance the guarantee is given, the harm or injustice contemplated under this head must be of such an exceptional and irretrievable nature as would override the terms of the guarantee and the adverse effect of such an injunction on commercial dealings in the country. The two grounds are not necessarily connected, though both may coexist in some cases.

12. It is equally well settled in law that bank guarantee is an independent contract between bank and the beneficiary thereof. The bank is always obliged to honour its guarantee as long as it is an unconditional and irrevocable one. The dispute between the beneficiary and the party at whose instance the bank has given the guarantee is immaterial and of no consequence. In BSES Ltd. v. Fenner India Ltd., this Court held:

10. There are, however, two exceptions to this rule. The first is when there is a clear fraud of which the bank has notice and a fraud of the beneficiary from which it seeks to benefit. The fraud must be of an egregious nature as to vitiate the entire underlying transaction. The second exception to the general rule of non-intervention is when there are special equities in favour of injunction, such as when irretrievable injury or irretrievable injustice would occur if such an injunction were not granted. The general rule and its exceptions has been reiterated in so many judgements of this Court, that in U.P. State Corporation v. Sumac International Ltd., this Court correctly declared that the law was settled.

32. When the attention of the Honble Bench was invited to the terms of the Bank guarantee and a submission was raised on the basis of the decision in Hindustan Construction (supra), the matter was clarified by the Supreme Court in paras 22 to 27 thus:

22. In the present case the amended clause does not refer to any of the clauses specifically as such but on the other hand the Bank had undertaken responsibility to pay any sum or sums within the guaranteed limit upon receipt of written demand from the company. The operative portion of the bank guarantee furnished by the Bank does not refer to any of the conditions for payment under the bank guarantee. It is true that the bank guarantee furnished makes a reference to the principal agreement between the parties in its preamble. Mere fact that the bank guarantee does not make the guarantee furnished by the bank to be a conditional one unless any particular clause of the agreement has been made part of the deed of guarantee.

23. The recitals in the preamble in the deed of guarantee do not control the operative part of the deed. After careful analysis of the terms of the guarantee we find the guarantee to be an unconditional one. The appellant, therefore, cannot be allowed to raise any dispute and prevent the respondent from encashing the bank guarantee.

24. The next question that falls for our consideration is as to whether the present case falls under any of or both the exceptions, namely, whether there is a clear fraud of which the Bank has notice and a fraud of the beneficiary from which it seeks to benefit and another exception whether there are any special equities in favour of granting injunction.

25. This Court in more than one decision took the view that fraud, if any, must be of an egregious nature as to vitiate the underlying transaction. We have meticulously examined the pleadings in the preswent case in which no factual foundation is laid in support of the allegation of fraud. There is no even a proper allegation of any fraud as such and in fact the whole case of the appellant centres around the allegation with regard to the alleged breach of contract by the respondent. The plea of fraud in the appellants own words is to the following effect:

That despite the respondent HCL being in default of not making payment as stipulated in the bank guarantee, in perpetration of abject dishonesty and fraud, the respondent HCL fraudulently invoked the bank guarantee furnished by the applicant and sought remittance of the sums under the conditional bank guarantee from Oriental Bank of Commerce vide letter of invocation dated 16/12/2003

26. In our considered opinion such vague and indefinite allegations made do not satisfy the requirement in law constituting any fraud much less the fraud of an egregious nature as to vitiate the entire transaction. The case, therefore does not fall within the first exception.

27. Whether encashment of the bank guarantee would cause any irretrievable injury or irretrievable injustice. There is no plea of any special equities by the appellant in its favour. So far as the plea of irretrievable injustice is concerned the appellant in its petition merely stated:That should the respondent be successful in implementing its evil design, the same would not only amount to fraud, cause irretrievable injustice to the applicant, and render the arbitration nugatory and infructuous but would permit the respondent to take an unfair advantage of their own wrong at the cost and extreme prejudice of the applicant.

33. These are the principles which must govern the present case as well. We have reproduced the bank guarantee only to demonstrate the fact that the recitals in the bank guarantee are not such as would make it conditional. No particular part of the parent contract leave alone any clause therein, has been made part of the deed of guarantee. Recitals in the preamble do not control operative part of the deed. In the present case, the operative part may be making a mere reference to the bank undertaking pecuniary responsibility of the appellants to the first respondent for due performance of the contract and for payment of any money but that part or clause does not mean that the parent contract is to be read into the obligations of the bank to make payment of money in favour of the EPC contractor/ first respondent. If the bank guarantee is read as a whole, it is clear that the payment has to be made by the bank in terms of the guarantee which is unconditional and irrevocable. If clauses 6, 7, 9 and 11 of the Bank Guarantee are perused carefully, it is apparent to us that the bank guarantee being on demand, unconditional and irrevocable, its enforcement and encashment is based only on the demand made on the bank and the demand made by the beneficiary is conclusive and binding. That the bank guarantee is independent of the parent contract is clear from the fact that the parties have taken care to word the bank guarantee in such a manner that none of the disputes between them arising out of the parent contract would affect the right of the beneficiary to invoke the bank guarantee. The bank cannot, therefore, take shield or cover of any dispute under the parent contract and deny to the beneficiary the benefits of its demand on the bank to encash the bank guarantee. If the bank guarantee is construed in the manner suggested by Mr. Seervai, then, in our opinion, the settled principles laid down by the Supreme Court would be wholly brushed aside. With respect these principles are binding upon us and it is not permissible to take a different view on some vague pleas of equities. If Mr. Seervais arguments are to be accepted, then, the very concept of obligations under the bank guarantee being independent and absolute, would be defeated. That would be contrary to the international banking practice and not in the interest of National and International trade and commerce as well, besides, the banks losing their credibility. Such an interpretation would also mean that the bank is not obliged to pay the monies under the bank guarantee upon demand merely because there are some disputes between the parties to the parent contract.

34. Mr. Seervais complaint is that whether a case would fall within the exceptions to the general principles or not is something which is not considered even at this prima facie stage by the learned Single Judge. We do not find any merit in this contention. Firstly, the learned Single Judge was equally bound by the aforesaid well settled principles. Secondly, it is not as if the learned Judge has not considered the matter at the prima facie stage in its proper perspective. It is for the petitioner appellant to prima facie demonstrate and prove that the exceptions are attracted in the facts and circumstances of the present case. The first exception is that, there must be a fraud and the fraud must be of a egregious nature so as to vitiate the underlying transaction. That would have to be pleaded as fraud must be pleaded. All material particulars are to be pleaded and proved, if the allegation of fraud is to be even prima facie substantiated.

35. We have carefully perused the entire arbitration petition with the assistance of learned Senior Counsel. Apart from setting out the general obligations of parties under the parent contract and stating that the first respondent has in contravention and contrary to the terms and conditions encashed a mobilisation advance bank guarantee and the acts and conduct of the respondent No. 1 is fraudulent, there are no particulars placed on record. Making a reference to the letters and contract clauses does not make out a case of fraud. In Svenska Handels Banken v. Indian Charge Crome reported in : A.I.R. 1994 S.C. 626, the Honble Supreme Court was dealing with a case of Encashment of Bank Guarantee. In paras 43, 44 and 98 of this decision, the Honble Supreme Court has held that mere pleadings does not make out a strong case of prima facie fraud. The material and evidence has to show it. It held that a finding as to fraud cannot be based on suspicion and conjecture. The appellant was obliged to show prima facie case of established fraud and an irretrievable injury. Para 29 of the petition, speaks of not the subject bank guarantee but the encashment of the mobilisation advance bank guarantee. Thereafter, it is vaguely stated that the first respondent has no right to invoke and/or encash the performance bank guarantee and any such act on their part would be fraudulent and contrary to the terms and conditions of the construction contract and the performance bank guarantee so also would cause irretrievable injustice to the petitioners/ appellants. The petitioners/ appellants stated and submitted that there are special equities in their favour. Mr. Seervai could not show us any pleadings other than these, to support the plea of fraud, irretrievable injustice or irretrievable injury and special equities. As held in the latest decision by the Supreme Court vague and indefinite allegations do not satisfy the requirements in law to constitute any fraud much less the fraud of egregious nature so as to vitiate the entire transaction. Mr. Seervai was at pains to point out that in para 12 of the petition, there is a reference to a letter dated 8th December 2008, copy of which is annexed as Exh.I to the petition. That letter is addressed by M/s.Su-toll Road Pvt.ltd. To Project Director, Project Implementation Unit, National Highway Authority of India. The letter is dated 8th December 2008. Clause 29.1 of the concession agreement was invoked and the second interim application for extension of time was made. What is attributed to NHAI is a delay in handing over of additional land for the project, clearance of various areas and appointment of competent authority for land acquisition. Therein, while referring to the concession agreement and the clauses therein, a request is made by M/s.Su-toll that the concessionaire has reported details of the nature and extent of each force majure events. It is in that context that the extension was sought.

36. Mr. Seervai contends that the project is a turn key and infrastructure project. The first respondent is the EPC contractor. The concession agreement is dated 19th April 2007 between the NHAI and M/s.Su-toll Road Pvt.ltd. The EPC agreement is between M/s.Su-toll and first respondent. That is dated 31st January 2008. The work was, thereafter, divided and first respondent issued LOI dated 12th December 2007 in favour of the appellant/ petitioner for procurement and construction of the road. Thereafter, this construction agreement is executed. Mr. Seervai, therefore, invites our attention to some of the clauses in this contract and submits that obligation being interdependent and unless the first party in point of time complies with its obligation, the second, third party cannot be called upon to comply with their part of the contract. That is how, principally, Nathulals case would be applicable, according to him. Looked at from this angle, according to Mr. Seervai, extension letter addressed by M/s.Su-toll would demonstrate that there was no occasion to invoke the performance bank guarantee as no case of the performance being defective, faulty or slow can be made out. Therefore, interlinking all these obligations, he submits that this letter is crucial.

37. We are afraid that we cannot approach the matter in this manner. Assuming that Mr. Seervai is right in urging that the learned Single Judge should have seen all these aspects at the prima facie stage, yet, having seen the materials produced, we are unable to uphold the contention of Mr. Seervai. If Mr. Seervais contentions are to be upheld, then, we must ignore and brush aside the terms of the bank guarantee. Once the bank guarantee is an independent contract and its terms alone are to be considered, then, all this is irrelevant even at this prima facie stage. It is not as if breach of obligations, which may be inter se or interlinked to some extent, cannot be seen even at this prima facie stage itself, but as held by the Supreme Court that must have a direct bearing to the obligations of the bank under the bank guarantee. If the case falls within the four corners of the law laid down in M/s. Hindustan Constructions case (supra), then, possibly Mr. Seervais contentions could have been upheld. However, in the instant case, when the bank guarantee is not dependent upon due fulfillment and satisfaction of the obligations under the parent contract so also the bank not being concerned with the same, then, we do not see as to how the letter of M/s. Su-toll or the contract clauses can be of any assistance to Mr. Seervai.

38. Mr. Seervai could not support his arguments by pointing out any part of the pleadings either. We have gone through the pleadings minutely and carefully to find out as to whether the appellants/ petitioners have made out any case of the matter falling within the exceptions noted above, but they being totally lacking, then, we have no alternative but to uphold the view taken by the learned Single Judge. The learned Single Judge would have been obliged to go into the contentions raised by Mr. Seervai before us, provided there were definite and clear pleadings. They being lacking hopelessly, the learned Single Judge was not obliged to consider the submissions of Mr. Seervai merely because the words fraud, irretrievable injustice and special equities have been set out in the pleadings. The words by themselves do not mean anything as is clear from the Supreme Court decisions in the field. For the applicability of exceptions to such a case, the pleadings have to be clear and not vague and ambiguous so also general.

39. In these circumstances, we do not find that the view taken by the learned Judge is erroneous or vitiated by perversity so as to call for interference in our appellate jurisdiction. The decision of the Honble Chief Justice sitting singly at Delhi is distinguishable. In that decision, there was material to establish fraud, irretrievable injustice or special equities. There, an argument was raised before the Honble Chief Justice that the Court cannot even look into the underlying contract to examine whether the guarantee has been encashed as per its terms or is not a result of fraud or act falling under the head of irretrievable injustice or special equities. Before us no such extreme stand has been taken. Our attention was invited to the terms of the bank guarantee and the issue raised was very limited as to whether the first respondent was prevented by fraud, irretrievable injustice or special equities from encashing the bank guarantee in question. That the terms of the performance bank guarantee merely make a reference to the parent contract but as held by the Supreme Court, that by itself would not mean that the bank guarantee is conditional, then, we are afraid, the judgement of the learned Single Judge of Delhi High Court would have no application to this case. More so, when the principles are amply clarified by the Supreme Court in the latter decisions.

40. In this view of the matter, even this decision is of no assistance to Mr. Seervai. The judgement in Nathulals case would not have any bearing at this stage, inasmuch as, the obligations under the parent contract would have to be considered before any conclusion can be recorded. That is a matter which must be looked into by the Arbitral Tribunal and we have no doubt in our mind that it will be so looked into. We must clarify that none of our observations and findings at this prima facie stage and that too, on the limited request to restrain the encashment of bank guarantee, would influence the arbitral tribunal in any manner while adjudicating upon the merits of the matter and dispute raised before it. That the Arbitral Tribunal will do it without being so influenced and render its award on the basis of the materials produced by both sides is beyond doubt. All pleas on merits are kept open.

41. In the result, we uphold the view taken by the learned Single Judge and dismiss the appeal. Appeal is accordingly dismissed. No costs.