CRSC RESEARCH AND DESIGN INSTITUTE GROUP CO LTD v. DEDICATED FREIGHT CORRIDOR CORPORATION OF INDIA LIMITED & ORS.

Court: High Court of Delhi

Bench: HON'BLE MR. JUSTICE C.HARI SHANKAR

Judgment date: 2020-09-30

Case summary

High Court of Delhi judgment dated 2020-09-30. CRSC RESEARCH AND DESIGN INSTITUTE GROUP CO LTD v. DEDICATED FREIGHT CORRIDOR CORPORATION OF INDIA LIMITED &...

Judgment text

$~ * IN THE HIGH COURT OF DELHI AT NEW DELHI th Reserved on:10 August, 2020 th Pronounced on: 30 September, 2020 + O. M. P. (I) (COMM. ) 184/2020 & I. A. 5642/2020, I. A. 5643/2020 CRSC RESEARCH AND DESIGN INSTITUTE GROUP CO. LTD. ..... Petitioner Through: Mr. Rajiv Nayar, Sr. Adv. with Mr. Krishna Vijay Singh, Mr. Manish Dembla, Mr. Ankur Khandelwal, Mr. Nachiketa Goyal, Mr. Kartik Nayar, Mr. Saurabh Seth, Advs. versus DEDICATED FREIGHT CORRIDOR CORPORATION OF INDIA LIMITED & ORS. ..... Respondents Through: Mr. Tushar Mehta, Solicitor General, assisted by Ms. Garima Prashad, Advocate-on- Record, Mr. Abhishek Kumar Tripathi, Ms. Ankita Pandey and Mr. Imtiyaz, Advs. CORAM: HON'BLE MR. JUSTICE C. HARI SHANKAR J U D G E M E N T % 1. This petition, under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the 1996 Act”), Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 1 of 74 Signing Date:30. 09.

2020 21:35:39 seeks an order of restraint against invocation/encashment of Bank Guarantees, furnished by the petitioner to Respondent No. 1. 2. Detailed submissions were advanced by Mr. Rajiv Nayar, learned Senior Counsel for the petitioner and Mr. Tushar Mehta, learned Solicitor General for Respondent No. 1 and, at joint request of th learned Senior Counsel (as recorded on 10 August, 2020, when orders were reserved), this judgement finally disposes of the present proceedings. Facts rd 3. Vide Letter of Acceptance dated 23 June, 2016, Respondent No. 1 informed the petitioner that its bid, for “Design, Supply, Construction, Testing and Commissioning of Signalling, Telecommunication and Associated Works of Double Track Railway Lines Under Construction On A Design Build Lump Sum Basis for Mughalsarai-New Bhaupur Section of Eastern Dedicated Freight Corridor-Contract Package-203” (hereinafter referred to as “the Project”), for construction of Double Line Electrified Section, covering 388.

14 km, between Mughal Sarai and New Bhaupur and 29. 15 km between Junction Stations and IR Stations, had been accepted, at the contract price of ₹ 471 crores. 4. This Letter of Acceptance crystallised into a formal Contract, rd dated 3 October, 2016. The petitioner was required, vide the th Contract, to complete the Project Work during the period 4 August, Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 2 of 74 Signing Date:30. 09. 2020 21:35:39 th 2016 to 30 April, 2019. The Contract fixed four Milestones, being dates by which specified sections of the Work was required to be completed by the petitioner. The specifics of the said Milestones may be depicted thus: (i) Milestone 1 was fixed as 360 days from the th Commencement Date, i. e. 29 July, 2017. Prior thereto, the petitioner was required to have commenced the activities of Permanent Works, which entitled him to payment of at least 10% of the Accepted Contract Amount.

(ii) Milestone 2 was fixed as 600 days from the th Commencement Date, i. e. 27 March, 2018. Prior thereto, the petitioner was required to have completed (a) 75% of laying of outdoor signalling and telecom cable, and their termination and testing, and (b) supply of S & T equipment and its progress of installation, which entitled the petitioner to payment of at least 40% of the accepted contract amount. (iii) Milestone 3 was fixed as 800 days from the th Commencement Date, i. e. 12 October, 2018. Prior thereto, the petitioner was required to have completed (a) 90% of laying of outdoor signalling and telecom cable, and their termination and testing, and Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 3 of 74 Signing Date:30. 09. 2020 21:35:39 (b) supply of S & T equipment and its progress of installation, which entitled the petitioner to payment of at least 65% of the Accepted Contract Amount.

(iv) Milestone 4 was fixed as 1000 days from the th Commencement Date, i. e. 30 April, 2019. Prior thereto, the petitioner was required to have completed all works, as per the Contract, and to have issued a Taking Over Certificate in accordance with Clause 10 of the Conditions of Contract. 5. The Contract appointed SYSTRA MVA Consulting (India) Pvt Ltd. , Allahabad, as the Project Management Consultant (PMC) for the Contract. Communications with the petitioner were, generally, addressed by the PMC, on behalf of Respondent No. 1. 6. Four Advance Bank Guarantees, for a total value of approximately ₹ 38. 06 crores, and one Performance Bank Guarantee, for ₹ 23. 55 crores, were furnished by the petitioner, in accordance with the requirements of the Contract. The Advance Bank Guarantees st are valid up to 1 May, 2021, and the Performance Bank Guarantee is th valid till 24 June, 2021. 7.

Various requests, for extension of time to perform the Contract, were made by the petitioner, and acceded to, by Respondent No. 1. th Vide letter dated 19 May, 2020, however, Respondent No. 1 rejected th the request, dated 7 May, 2020, of the petitioner, for further Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 4 of 74 Signing Date:30. 09. 2020 21:35:39 extension of time.

A tabular depiction of this position has been provided, in the petition, thus: Date of letter Date, to which Extension Date of grant of seeking extension of granted extension extension of time was sought time th th 17 August, Milestone 1:20 Not granted Rejected vide th 2017 September, 2017 letter dated 10 October, 2017 th th th 8 May, 2018 Milestone 2:16 Milestone 2: Till 18 August, th February, 2019 17 August, 2018 2018 th Milestone 3:17 July, 2019 No extension granted for th Milestone 4: 18 Milestones 3 and April, 2020 4 rd th th 23 March, 2019 Milestone 2: 9 Milestone 2: Till 20 May, 2019 th September, 2019 4 August, 2019 (communicated vide letter dated rd nd Milestone 3: 23 Milestone 3: Till 22 June, 2019) th January, 2020 20 October, 2020 th Milestone 4: 28 Milestone 4: Till th August, 2020 7 May, 2020 th st nd 10 December, Milestone 2: 21 Milestone 2: Till 22 April, 2020 th 2019 August, 2020 6 July, 2020 (communicated vide letter dated th rd Milestone 3: 16 Milestone 3: Till 23 April, 2020) th February, 2021 4 October, 2020 st Milestone 4: 31 August, 2021 Milestone 4: Till th 18 February, 2021 th 7 May, 2020 40 days Not granted Rejected vide th extension sought letter dated 19 for all May, 2020 Milestones Signature Not Verified Digitally Signed By:SUNIL O.

M. P. (I) (COMM. ) 184/2020 Page 5 of 74 Signing Date:30. 09. 2020 21:35:39 nd 8. The letter, dated 22 April, 2020, from Respondent No. 1 to the petitioner, granting extension of time, as sought by the petitioner, was granted “without levying any penalty on either of parties as recommended by PMC”. The letter noted the fact that Milestone-1 had been achieved, by the petitioner, within the stipulated period, without extension. As noted hereinabove, the letter granted extension th th of time, for achieving Milestones 2, 3 and 4, till 6 July, 2020, 4 th October, 2020 and 18 February, 2021, respectively. 9. In February-March, 2020, India was hit by the COVID-2019 pandemic, which ravaged the world. Consequent thereupon, Office th Memorandum (OM), dated 13 May, 2020, was issued by the Department of Expenditure, Ministry of Finance, regarding invocability of force majeure, during the currency of the pandemic. Paras 4 and 5 of the OM read thus: “4.

It is recognised that in view of the restrictions placed on the movement of goods, services and manpower on account of the lockdown situation prevailing overseas and in the country in terms of the guidelines issued by the MHA under the DM Act 2005 and the respective State and UT Governments, it may not be possible for the parties to the contract to fulfil contractual obligations. In respect of Public-private Partnership (PPP) concession contracts, a period of the contract may have become unremunerative.

Therefore, after fulfilling due procedure and wherever applicable, parties to the contract may invoke FMC for all construction/works contracts, goods and services contracts and PPP contracts with Government Agencies and in such event, date for completion of contractual obligations which had to be th completed on or after 20 February 2020 shall stand extended for a period of not less than three months and not more than six months without imposition of any cost of penalty on the Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 6 of 74 Signing Date:30. 09. 2020 21:35:39 contract/concessionaire. Concession period in PPP contracts th ending on or after 20 February 2020 shall be extended by not less than three and not more than six months. The period of extension (between three and six months) may be decided based on the specific circumstances of the case and the period for which performance was affected by the force majeure events. 5.

It is clarified that invocation of FMC would be held valid only in a situation where the parties to the contract were th not in default of the contractual obligations as on 19 February, 2020. It is further clarified that invocation of FMC does not absolve all non-performances of a party to the contract, but only in respect of such non-performance as is attributable to a lockdown situation of restrictions imposed under any Act or executive order of the Government/s on account of COVID-19 global pandemic. It may be noted that, subject to the above stated, all contractual obligations shall revive on completion of the period. ” 10. According to the petitioner, the extensions of time, granted, to the petitioner by Respondent No. 1, for achieving Milestones 2, 3 and 4, would stand extended, ipso facto, by operation of the aforesaid OM, th dated 13 May, 2020, issued by the Department of Expenditure, by at least three months.

As such, the date for completion of Milestone 2, th according to the petitioner, would stand extended at least till 6 October, 2020. st 11. On 31 March, 2020, the petitioner wrote to Respondent No. 1, through the PMC, invoking Clause 19. 2 of the Contract, which provided for force majeure, in the light of the 21 days’ lockdown, imposed by the Central Government, consequent on the COVID-2019 th th pandemic, which was to last from 25 March, 2020 till 14 April, 2020. In view thereof, the petitioner stated that the petitioner had Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 7 of 74 Signing Date:30. 09. 2020 21:35:39 been temporarily incapacitated from performing its obligations under the Contract. The petitioner, therefore, sought extension of time, for completing the contract, under Clause 8. 4 thereof, which reads thus: “8. 4 Extension of Time for Completion The Contractor shall be entitled subject to Sub- Clause 20.

1 [Contractor’s Claims] to an extension of the Time for Completion if and to the extent that completion for the purposes of Sub-Clause 10. 1 [Taking over of the Works and Sections] is or will be delayed by any of the following causes: (a) A Variation (unless an adjustment to the Time for Completion has been agreed under Sub- Clause 13. 3 [Variation Procedure]), (b) a cause of delay giving an entitlement to extension of time under Sub-Clause of these Conditions, (c) exceptionally adverse climatic conditions, (d) unforeseeable shortages in the availability of Goods caused due to changes in laws in accordance with the provisions of Sub- Clause 13. 7, or (e) any delay, impediment or prevention caused by or attributable to the Employer, the Employers Personnel, or the Employers other contractors on the Site, (f) A cause of delay in handing over possession of Site in accordance with the provisions of Sub- Clause 2. 1.

If the Contractor considers himself to be entitled to an extension of the Time for Completion, the Contractor shall give notice to the Engineer in accordance with Sub- Clause 20. 1 [Contractors Claims]. When determining each extension of time under Sub- Clause 20. 1, the Engineer shall review previous Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 8 of 74 Signing Date:30. 09. 2020 21:35:39 determinations and may increase, but shall not decrease, the total extension of time. ” Force Majeure” was covered by Clause 19 of the Contract. Sub-clauses 19. 1, 19. 2, 19. 4 and 19.

7, thereunder, may be reproduced Force Majeure Definition of Force Majeure In this Clause, “Force Majeure” means an exceptional event or circumstance: (a) which is beyond a Party’s control, (b) Which such Party could not reasonably have provided against before entering into a Contract, (c) which, having arisen, such Party could not reasonably have avoided or overcome, and (d) which is not substantially attributable to the other Party.

Force Majeure may include, but is not limited to, exceptional events or circumstances of the kind the listed below, so long as conditions (a) to (d) are satisfied: (i) war, hostilities (whether war be declared or not), invasion, act of foreign enemies, (ii) rebellion, terrorism, revolution, insurrection, military or usurped power, or civil war, (iii) riot, commotion, disorder, strike or lockout by persons other than the Contractor’s Personnel and other employees of the Contract and Sub- contractors, (iv) munitions of war, explosive Materials, ionising radiation or contamination by radioactivity, except as Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 9 of 74 Signing Date:30. 09. 2020 21:35:39 may be attributable to the Contractor’s use of such munitions, explosives, radiation or radioactivity, and (v) natural catastrophes such as earthquake, hurricane, Typhoon or volcanic activity. 19.

2 Notice of Force Majeure If a party is or will be prevented from performing any of its obligations under the Contract by Force Majeure, then it shall give notice to the other Party of the events or circumstances constituting the Force Majeure and shall specify the obligations, the performance of which is or will be prevented. The notice shall be given within 14 days after the Party became aware, or should have become aware, of the relevant event or circumstance constituting Force Majeure. The Party shall, having given notice, be excused performance of such obligations for so long as such Force Majeure prevents it from performing them. Notwithstanding any other provision of this Clause, Force Majeure shall not apply to obligations of either Party to make payments to the other Party under the Contract. ***** 19.

4 Consequences of Force Majeure If the Contractor is prevented from performing any of his obligations under the Contract by force majeure of which notice has been given under Sub- Clause 19. 2 [Notice of Force majeure], and suffers delay and/or incurs Cost by reason of such force majeure, the Contractor shall be entitled subject to Sub- Clause 20. 1 [Contractors Claims] to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub- Clause 8. 4 [Extension of Time for Completion], and Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 10 of 74 Signing Date:30. 09. 2020 21:35:39 (b) if the event or circumstance is of the kind described in sub- para (i) to (iv) of Sub- Clause 19. 1 [Definition of Force majeure] and, in the case of sub-paras (ii) to (iv), occurs in the Country, payment of any such Cost. After receiving this notice, the Engineer shall proceed in accordance with Sub- Clause 3.

5 [Determinations] to agree or determine these matters. ***** 19. 7 Release from Performance under the Law Notwithstanding any other provision of this Clause, if any event or circumstance outside the control of the Parties (including, but not limited to, force majeure) arises which makes it impossible or unlawful for either or both Parties to fulfil its or their contractual obligations of which, under the law governing the Contract, entitles the Parties to be released from further performance of the Contract, then upon notice by either Party to the other Party of such event or circumstance: (a) the Parties shall be discharged from further performance, without prejudice to the rights of either Party in respect of any previous breach of the Contract, and (b) the sum payable by the Employer to the Contractor shall be the same as would have been payable under Sub- Clause 19. 6 [Optional Termination, Payment and Release] if the Contract had been terminated under Sub- Clause 19. 6. ” 13.

The request, of the petitioner, for extension of time on the ground of force majeure, was rejected, by Respondent No. 1 (through th the PMC), vide letter dated 19 May, 2020. Paras 1 and 2 thereof, Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 11 of 74 Signing Date:30. 09. 2020 21:35:39 which dealt with the petitioner’s claim for extension of time, read as under: “1. CRSCD as mentioned in para 1. 2. 3 of their letter that “India has declared a state of emergency to fight the pandemic by Closing borders” is not correct. 2. CRSCD has also mentioned in para 1. 3. 4; Delay Event 1 that “Force Majeure events has been preventing the Contractor from performing its obligations under the contract, including design, procurement is not correct”, hence, not acceptable. CRSCD has regularly submitted soft copy of the design to PMC and PMC has also provided its review comments. A progress review meeting through VC was held on 11. 04.

2020, and the MOM of the meeting has details of th th designs submitted/reviewed between 25 March to 20 April 2020. ” rd 14. On 3 July, 2020, Respondent No. 1 issued a 14 days’ notice of termination, under Clause 15. 2 of the General Conditions of Contract (GCC). The communication referred to eleven earlier communications, between the petitioner and Respondent No. 1 th th nd (through the PMC), dated 19 December, 2016, 24 June, 2017, 22 th th th February, 2018, 27 March, 2018, 7 June, 2018, 20 November, st st th th 2018, 1 August, 2019, 1 October, 2019, 18 November, 2019, 30 th January, 2020 and 11 March, 2020. Thereafter, the communication proceeded to state thus: “Whereas a contract or agreement between DFCCIL (Employer) and M/s Beijing National Railway Research & Design Institute of Signal & Communication Group Co Ltd (Contractor) for the work captioned in subject line is in force with extended time of completion being 18. 02. 2021. The contract is being administered by M/s.

SYSTRA Mott Macdonald (JD) as PMC. Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 12 of 74 Signing Date:30. 09. 2020 21:35:39 Whereas the contract has been issued 10 nos. notices vide a reference (iii) to (xii) under sub- clause 15. 1 of GCC/PCC by Engineer. Even after issuing 10 nos. notices under sub-clause 15. 1 of GCC/PCC by the Engineer no significant improvement has been noticed. The Engineer having convinced of the Contractor’s failures and defaults under the contract, Engineer vide a reference (xiii) recommended DFCCIL to take necessary action as per the provision in the contract to invoke notice to Contractor as per Clause 15. 2 (Termination by Employer) of GCC/PCC for non compliance of clause 15. 1 of GCC/PCC by Contractor for notice issued to him to improve the progress of work and requested Employer for taking needful action in the matter.

And whereas the above and other correspondences of the Engineer including the replies submitted by the Contractor as of date, materials available on record, having been duly considered by the Employer and in the light of the same, the Employer hereby issue 14 Days Notice as per the terms and conditions of GCC/PCC Clause 15. 2 (a) of the Contract Agreement. The Notice of 14 days for Termination of Employer is being issued as required under sub- clause 15. 2(a) of GCC (FIDIC Yellow Book 1999-Edition) without prejudice to the Employer’s any right under the contract or otherwise. ” Clauses 15. 1 and 15. 2 of the GCC read thus: “15 Termination by Employer 15. 1 Notice to Correct If the Contractor fails to carry out any obligation under the Contract, the Engineer may by notice require the Contractor to make good the failure and to remedy it within a specified reasonable time. 15.

2 Termination by Employer The Employer shall be entitled to terminate the Contract if the Contractor: Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 13 of 74 Signing Date:30. 09. 2020 21:35:39 (a) fails to comply with Sub-Clause 4. 2 [Performance Security] or with a notice on this Sub- Clause 15. 1 [Notice to Correct], (b) abandons the Works or otherwise plainly demonstrates the intention not to continue performance of its obligations under the Contract, (c) without reasonable excuse fails: (i) to proceed with the Works in accordance with Clause 8 [Commencement, Delays and Suspension], or (ii) to comply with a notice issued under Sub-Clause 7. 5 [Rejection] or Sub-Clause 7.

6 [Remedial Work], within 28 days after receiving it, (d) subcontracts the whole of the Works or assigns the Contract without the required agreement, (e) becomes bankrupt or insolvent, goes into liquidation, has a receiving or administration order made against him, compounds with his creditors, or carries on business under the receiver, trustee or manager for the benefits of his creditors, or of any act is done or event occurs which (under applicable Laws) has a similar effect to any of these acts or events, or (f) gives or offers to give (directly or indirectly) to any person any bright, gift, gratuity, commission or other thing of value, as an inducement or reward: (i) for doing or forbearing to do any action in relation to the Contract, or (ii) for showing or forbearing to show favour of disfavoured to any person in relation to the Contract, or if any of the Contractor’s Personnel, agents Sub-contractors gives or offers to give (directly or Signature Not Verified Digitally Signed By:SUNIL O.

M. P. (I) (COMM. ) 184/2020 Page 14 of 74 Signing Date:30. 09. 2020 21:35:39 indirectly) to any person any such inducement or reward as is described in this sub- para (f). However, lawful inducements and rewards to Contractors Personnel shall not entitle termination. In any of these events or circumstances, the Employer may, upon giving 14 days’ notice to the Contractor, terminate the Contract and expel the Contract from the Site. However, in the case of sub-paragraph (e) or (f), the Employer may by notice to terminate the Contract immediately. The Employer’s election to terminate the Contract shall not prejudice to any other rights of the Employer, under the Contract or otherwise. The Contractor shall then leave the Site and deliver any required Goods, all Contractor’s Documents, and other design documents made by or for him, to the Engineer.

However, the Contractor shall use his best efforts to comply immediately with any reasonable instructions included in the notice (i) for the assignment of any subcontract, and (ii) for the protection of life or property or for the safety of the Works. After termination, the Employer may complete the Works and/or arrange for any other entities to do so. The Employer and these entities may then use any Goods, Contractor’s Documents and other design documents made by or on behalf of the Contractor. The Employer shall then give notice that the Contractor’s Equipment and Temporary Works will be released to the Contract are at or near the Site. ” 15. Apprehending that, consequent to the issuance of notice for termination of the Contract, Respondent No. 1 would invoke and encash the Bank Guarantees provided by it, the petitioner has approached this Court, by means of the present petition under Section Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM.

) 184/2020 Page 15 of 74 Signing Date:30. 09. 2020 21:35:39 9 of the 1996 Act, as the Contract admittedly contained an arbitration clause. 16. Detailed submissions have been advanced by Mr. Rajiv Nayar, learned Senior Counsel for the petitioner and Mr. Tushar Mehta, learned Solicitor General appearing for Respondent No. 1. Copious written submissions have also been filed by learned Counsel, during as well as after the conclusion of the proceedings and reserving of judgement. Rival submissions 17. Mr. Rajiv Nayar, learned Senior Counsel for the petitioner contends thus: (i) Having extended the time for completion of the work, rd th vide letter dated 23 April, 2020 supra, till 18 February, 2021, Respondent No. 1 could not have terminated the contract on the rd allegation of delay/slow progress on 3 July, 2020. Mr. Nayar draws my attention, in this context, to the fact that the letter rd dated 3 July, 2020 does not notice the extension of time nd granted, by Respondent No.

1, vide letter dated 22 April, 2020 th th supra, till 6 July, 2020 for Milestone 2, 4 October, 2020 for th Milestone 3 and 18 February, 2021 for Milestone 4. In this context, Mr. Nayar places reliance on Clause 8. 2 and 8. 4 of the Contract, which dealt with the “Time for Completion”, and Extension thereof, in conjunction with Clause 1. 1. 3. 3, which Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 16 of 74 Signing Date:30. 09. 2020 21:35:39 defined in the said expression. Clause 8. 2 set out the timelines under the various Milestones. Clause 1. 1. 3. 3 reads thus: “1. 1. 3. 3 “Time for Completion” means the time for completing the Works ora Section (as the case may be) under Sub-Clause 8. 2 [Time for Completion], as stated in the Appendix to Tender (with any extension under Sub-Clause 8. 4 [Extension of Time for Completion]), calculated from the Commencement Date.

” (ii) The grant of extension, periodically, as sought by the petitioner, without levying of delay damages, amounted to an acknowledgement and admission of the fact that no delay was attributable to the petitioner. Clause 8. 7 of the Contract rendered the contractor liable to pay delay damages to Respondent No. 1, in the event of failure, by the contractor, to achieve any milestone on the scheduled date, except where the failure had occurred owing to force majeure or for reasons solely attributable to the employer. The Clause did not confer the Engineer with any discretion in that regard, or with the power to waive delay damages, if the contractor was at fault. While granting three extensions of time, for completion of Milestones 2, 3 and 4, Respondent No. 1 did not impose any delay damages, and did not reserve any right to levy delay damages. Rather, extension of time was granted, specifically, “without levying any penalties”. This amounted to an acknowledgement, by Respondent No.

1, that the delay was either due to force majeure, or owing to reasons attributable to Respondent No. 1. The submission, of Respondent No. 1, that Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 17 of 74 Signing Date:30. 09. 2020 21:35:39 it had levied delay damages of ₹ 1. 84 crores, for delay in achieving Milestone 1, did not remedy the situation. Milestone 1 had been achieved in 2017. Extensions of time, granted for achieving Milestones 2, 3 and 4, thereafter, were not conditioned by any levy of delay damages. The levy of delay damages in respect of Milestone 1 which, itself, was unlawful, did not remedy the situation. Clause 8. 7 of the Contract read thus: “8. 7 Delay Damages The Contractor shall complete the Works in accordance with the Time for Completion of Works set forth in Sub- Clause 8. 2 [Time for Completion].

In the event that the Contractor fails to achieve any Milestone on the date set forth for such Milestone in the Time for Completion, unless such failure has occurred due to Force Majeure or for reasons solely attributable to the Employer, the Contractor shall pay Delay Damages to the Employer in a sum calculated at the rate stated in the Appendix to Tender until such Milestone is achieved; provided that if the construction period for any or all Milestones is extended in accordance with the provisions of this Contract, the date set forth in the Sub-Clause 8. 2 [Time for Completion] shall be deemed to be modified accordingly and the provisions of this Sub- Clause shall apply as if Appendix to Tender has been amended accordingly; provided further that in the event Whole of the Works are completed within the Time for Completion as stated in the Sub-Clause 8.

2 [Time for Completion] of the Particular Conditions, the Delay Damages paid under this Sub-Clause shall be refunded by the Employer to the Contract, but without any interest thereon. Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 18 of 74 Signing Date:30. 09. 2020 21:35:39 It is agreed that recovery of Damages under this Sub-Clause shall be without prejudice to the rights of the Employer under this Contract including the right of Termination thereof. The parties hereby accept the delays cause loss to the public and national economy for whose benefit the Works is meant, and that the loss is not susceptible to precise measurement. The Parties hereby agree that the rate of delay damages agreed in this Clause 8. 7 is a reasonable predetermined amount, and that the delay damages are not by way of penalty. Further, the total amount of Delay Damages under Sub-Clause 8.

7 shall not exceed the maximum amount of delay damages (if any) stated in the Appendix to Tender. ” (iii) Similarly, though Clause 15. 1 of the Contract permitted the Engineer to issue “Notices to Correct”, to the petitioner, and though such notices were, in fact, issued, the communications, whereby extension of time was granted to the petitioner, by Respondent No. 1, made no reference to such earlier communications alleging default or slow progress. Clause 15. 1 may be reproduced, for the sake of reference, thus: “15. 1 Notice to Correct If the Contractor fails to carry out any obligation under the Contract, the Engineer may buy notice required the Contractor to make good the failure and to remedy it within a specified reasonable time. ” (iv) The respondent had failed to show any change of nd circumstances, between 22 April, 2020, when the last extension of time had been granted by Respondent No. 1 (as Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM.

) 184/2020 Page 19 of 74 Signing Date:30. 09. 2020 21:35:39 rd noted above), and 3 July, 2020, when the contract was terminated, as would entitle Respondent No. 1 to terminate the contract. (v) The termination was also invalid as there was a force th majeure situation, with effect from 24 March, 2020, which entitled the petitioner, as of right, to extension of time of at least three months, under Clause 19 of the contract as well as in th terms of the OM dated 13 May, 2020 issued by the Department of Expenditure, especially as the petitioner had duly tendered a force majeure notice in terms of the contract. th Applying the OM dated 13 May, 2020, to the extension of time already granted by Respondent No. 1, the date for th completion of Milestone 2 could, at the earliest, be 6 October, 2020. Respondent No. 1 could not, therefore, lawfully terminate the contract before the said date. Mr.

Nayar points rd out that the impugned termination notice, dated 3 July, 2020, th failed to take note of the Circulars, dated 11 May, 2020 and th 13 May, 2020, issued by the Government. (vi) Besides, even if it were to be assumed that the petitioner could not achieve Milestone 1 within the extended time, it was always possible that the petitioner would accelerate the work th and complete the contract before the revised date, i. e. 18 February, 2021. It was for this reason that Clause 8. 7 of the Contract provided that, if the entire work was completed within the original or extended time, delay damages, even if imposed Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 20 of 74 Signing Date:30. 09. 2020 21:35:39 for non-completion of any interim Milestone within the time granted, would be refunded. (vii) The contention of Respondent No. 1 that the Engineer th had recommended termination of the Contract on 11 March, 2020, was disputable.

No copy, of the said recommendation of the Engineer, was marked to the petitioner, as required by Clause 3. 5 of the GCC. Communications, from Respondent th No. 1, after 11 March, 2020, made no reference to the said recommendation of the Engineer. Besides, the contract did not empower the Engineer to recommend termination thereof, or to arrive at any determination in that regard. In any event, nd Respondent No. 1 granted further extension of time, on 22 April, 2020, nearly a month and a half after the purported letter of the Engineer which, accordingly, would stand superseded. th The reliance, by Respondent No. 1, on the said letter dated 11 March, 2020, of the Engineer, as a ground to justify the termination of the Contract was, therefore, misplaced. (viii) The dispute, regarding the validity of the termination of the contract, stood referred by Respondent No. 1 to the Dispute Adjudication Board (DAB) and, unless such dispute was decided in favour of Respondent No.

1, it could not be permitted to invoke the Bank Guarantees. In this context, Mr. Nayar refers to Clause 20. 2 of the Contract, which requires disputes to be “adjudicated by a DAB in accordance with Sub- Clause 20. 4”. The DAB was required to be appointed, by the parties, jointly, within twenty-eight days of tendering of notice, Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 21 of 74 Signing Date:30. 09. 2020 21:35:39 by one party to the other, of its intention to refer the dispute to the DAB in accordance with Sub-Clause 20. 4. Sub-Clause 20. 4, to the extent it is relevant, reads thus: “20.

4 Obtaining Dispute Adjudication Board’s Decision If a dispute (of any kind whatsoever) arises between the Parties in connection with, or arising out of, the Contract or the seclusion of the Works, including any dispute as to any certificate, determination, instruction, opinion or valuation of the Engineer, then after a DAB has been appointed pursuant to Sub- Clause 20. 2 and 20. 3, either Party may refer the dispute in writing to the DAB for its decision, with a copy to the other Party. Such reference shall state that it is given under this Sub- Clause. ***** Within 84 days after receiving such reference or the advance payment referred to in Clause 6 of Appendix – General Conditions of Dispute Adjudication Agreement, whichever date is later, or within such other period as may be proposed by the DAB and approved by both Parties, the DAB shall give its decision, which shall be reasoned and shall state that it is given under this Sub- Clause. ...

The decision shall be binding on both Parties, who shall promptly give effect to it unless and until it shall be revised in an amicable settlement or an arbitral award as described below. ... If either Party is dissatisfied with the DAB’s decision, then either Party may, within 28 days after receiving the decision, give notice to the other Party of its dissatisfaction. If the DAB fails to give its decision within the period of 84 days (or as otherwise approved) after receiving such reference of such payment, then either Party may, within 28 days after this period has Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 22 of 74 Signing Date:30. 09. 2020 21:35:39 expired, give notice to the other Party of its dissatisfaction. In either event, this notice of dissatisfaction shall state that it is given under this Sub- Clause, and shall set out the matter in dispute and the reason(s) for the dissatisfaction. Except as stated in Sub-Clause 20.

7 and Sub-Clause 20. 8, neither Party shall be entitled to commence arbitration of a dispute unless the notice of dissatisfaction has been given in accordance with this Sub-Clause. ” (ix) The termination of the contract, by Respondent No. 1, was based on alleged non-compliance, by the petitioner, with “Notices to Correct”, issued by the PMC under Clause 15. 1, which charged the petitioner with having been slow in the progress of the work. The reliance, on the said Notices to Correct, was misguided, as the Engineer himself had, subsequently, determined and recommended extension of time, in Terms of Clause 8. 4 read with Clause 3. 5 of the Contract. These extensions of time were also approved by Respondent No. 1, the last such approval having been accorded vide letter nd dated 22 April, 2020. (x) The termination of the contract, by Respondent No. 1 was illegal. If Respondent No. 1 did not desire to continue with the contract, it should have resorted to Clause 15. 5, which read thus: “15.

5 Employer’s Entitlement to Termination The Employer shall be entitled to terminate the Contract, at any time for the Employer’s convenience, by giving notice of such Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 23 of 74 Signing Date:30. 09. 2020 21:35:39 termination to the Contractor. The termination shall take effect 28 days after the date of the dates on which the Contractor receives this notice or the Employer returns the Performance Security. The Employer shall not terminate the Contract under this Sub-Clause in order to execute the Works himself or to arrange for the Works to be executed by another contractor. After the termination, the Contractor shall proceed in accordance with Sub- Clause 16. 3 [Cessation of Work and Removal of Contractors Equipment] and shall be paid in accordance with Sub-Clause 19. 6 [Optional termination, Payment and Release]. ” (xi) Respondent No.

1 was seeking to justify the invocation of the Bank Guarantees by reference to Clauses 15. 3 and 15. 4 of the GCC. These clauses read as under: “15. 3 Valuation at Date of Termination As soon as practicable after a notice of termination under Sub-Clause 15. 2 [Termination by Employer] has taken effect, the Engineer shall proceed in accordance with Sub- Clause 3. 5 [Determinations] to agree or determine the value of the Works, Goods and Contractor’s Documents, and any other sums due to the Contractor for work completed up to any defined stage of payment in accordance with the Contract. Extent of damages to the Employer due to termination under sub-Clause 15. 2 has been fixed as (1) Forfeiture of Performance Security (2) Forfeiture of Retention money (3) five per cent (5%) of the cost of the balance work at the date of termination.

The Parties hereby agree that the rate of these damages agreed in this is a reasonable pre-determined amount, and that these damages are not by way of penalty. ” 15. 4 Payment after Termination Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 24 of 74 Signing Date:30. 09. 2020 21:35:39 After a notice of termination under Sub-Clause 15. 2 [Termination by Employer] has taken effect, the Employer may: (a) proceed in accordance with Sub-Clause 2.

5 [Employer’s Claims], (b) withhold further payments to the Contractor until the actions in accordance with the following sub-paragraphs (c) and (d) are completed; (c) encash and forfeit the whole of the amounts of Performance Security and Retention Money and take possession of Plant and Materials delivered to Site, for which payment has been made by the Employer; (d) encash and appropriate the bank guarantee for the Advance Payment to recover the outstanding amount, if any, of the Advance Payment; and (e) pay to the Contractor any sums due under Sub-Clause 15. 3 [Valuation at Termination], after the full amounts of the Performance Security and Retention Money and five per cent (5%) of the cost of the balance work (as per clause 15. 3) and any other amount due from the Contractor have been received by the Employer. Any outstanding amounts against the Contractor shall immediately become due and payable by the Contractor to the Employer. ” Clauses 15. 3 and 15.

4 presupposed the existence of a valid termination of the contract, under Clause 15. 2. The termination of the contract itself being invalid, the invocation of the Bank Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 25 of 74 Signing Date:30. 09. 2020 21:35:39 Guarantees of the petitioner could not be justified under Clauses 15. 3 and 15. 4. (xii) Sub-Clause 15. 4(a) itself required Respondent No. 1 to proceed in accordance with Clause 2. 5. Clause 2. 5 requires the employer, i. e. Respondent No. 1 to raise a claim if the employer considered himself entitled to any payment under any Clause, in connection with the Contract. The Engineer was, thereafter, required to proceed in accordance with Clause 3. 5, to determine the amount, if any, to which the employer was entitled to be paid by the contractor. As such, Respondent No.

1 was not entitled to any amount, till there was an a priori determination, by the Engineer, of such entitlement, under Clause 3. 5. Any such determination was also subject to revision by the DAB and, thereafter, by the Arbitral Tribunal. In the present case, they had been no determination of liability, by the Engineer, under Clause 3. 5. Respondent No. 1 could not, therefore, proceed to encash the Bank Guarantees, by resorting to Clauses 15. 3 and 15. 4. This itself made out a case for injunctive relief, in favour of the petitioner, till the matter was decided in arbitral proceedings. This issue, contends Mr. Nayar, stands settled by the judgement of a coordinate bench of this Court in Larsen & 1 Toubro Ltd v. Experion Developers Pvt Ltd & Ors . Clauses 2. 5, 3. 5 and 4. 2 of the Contract read as under: “2. 5 Employer’s Claims 2019 SCC OnLine Del 9097 Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 26 of 74 Signing Date:30. 09.

2020 21:35:39 If the Employer considers himself to be entitled to any payment under any Clause of these Conditions or otherwise in connection with the Contract, and/or to any extension of the Defects Notification Period, the Employer or the Engineer shall give notice and particulars to the Contractor. However, notice is not required for payments due under Sub-Clause 4. 19 [Electricity, Water and Gas], under Sub-Clause 4. 20 [Employers Equipment and Free-Issue Material], or for other services requested by the Contractor. The notice shall be given as soon as practicable after the Employer became aware of the event or circumstances giving rise to the claim. A notice relating to any extension of the Defects Notification Period shall be given before the expiry of such period.

The particulars shall specify the Clause or other basis of the claim, and shall include substantiation of the amount and/or extension to which the Employer considers himself to be entitled in connection with the Contract. The Engineer shall then proceed in accordance with Sub-Clause 3. 5 [Determinations] to agree or determine (i) the amount (if any) which the Employer is entitled to be paid by the Contractor, and/or (ii) the extension (if any) of the Defects Notification Period in accordance with Sub-Clause 11. 3 [Extension of Defects Notification Period]. This amount may be included as a deduction in the Contract Price and Payment Certificates. The Employer shall only be entitled to set off against or make any deduction from an amount certified in a Payment Certificate, or to otherwise claim against the Contractor, in accordance with this Sub-Clause. ” “3. 5 Determinations Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 27 of 74 Signing Date:30.

09. 2020 21:35:39 Whenever these Conditions provide that the Engineer shall proceed in accordance with this Sub-Clause 3. 5 to agree or determine any matter, the Engineer shall consult with each Party in an endeavour to reach agreement. If agreement is not achieved, the Engineer shall make a fair determination in accordance with the Contract, taking due regard of all relevant circumstances. The Engineer shall give notice to both Parties of each agreement of determination, with supporting particulars. Each Party shall give effect to each agreement or determination unless and until revised under Clause 20 [Claims, Disputes and Arbitration]. ” “4. 2 Performance Security The Contractor shall obtain (at his cost) a Performance Security for proper performance, in the amount and currencies stated in the Appendix to Tender. If an amount is not stated in the Appendix to Tender, this Sub-Clause shall not apply.

The Contractor shall deliver the Performance Security to the Employer within 28 days after receiving the Letter of Acceptance, and shall send a copy to the Engineer. The Performance Security shall be issued by an entity and from within a country (or other jurisdiction) approved by the Employer, and shall be in the form annexed to the Particular Conditions or in another form approved by the Employer. The Contractor shall ensure that the Performance Security is valid and enforceable until the Contractor has executed and completed the Works and remedied any defects. If the terms of the Performance Security specify its expiry date, and the Contractor has not become entitled to receive the Performance Certificate by the date 28 days prior to the expiry date, the Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 28 of 74 Signing Date:30. 09.

2020 21:35:39 Contractor shall extend the validity of the Performance Security until the Works have been completed and any defects have been remedied. The Employer shall not make a claim under the Performance Security, except for amounts to which the Employer is entitled under the Contract in the event of: (a) failure by the Contractor to extend the validity of the Performance Security as described in the preceding paragraph, in which event the Employer may claim the full amount of the Performance Security, (b) failure by the Contractor to pay the Employer an amount due, as either agreed by the Contractor or determined under Sub-Clause 2. 5 [Employer’s Claims] or Clause 20 [Claims, Disputes and Arbitration], within 42 days after this agreement or determination, (c) failure by the Contractor to remedy a default within 42 days after receiving the Employer’s notice requiring the default to be remedied, or (d) circumstances which entitle the Employer to termination under Sub-Clause 15.

2[Termination by Employer], irrespective of whether notice of termination has been given. The Employer shall indemnify and hold the Contractor harmless against and from all damages, losses and expenses (including legal fees and expenses) resulting from a claim under the Performance Security to the extent to which the Employer was not entitled to make the claim. The Employer shall return the Performance Security to the Contractor within 21 days after Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 29 of 74 Signing Date:30. 09. 2020 21:35:39 receiving a copy of the Performance Certificate. ” (xiii) Besides, the use of the word “entitle”, in Clause 4. 2(d), indicates that there has to be a priori determination of the existence of circumstances which entitles Respondent No. 1 to terminate the agreement. Such determination of entitlement could only be by adjudication. The same expression, significantly, found place in Clause 2. 5 of the Contract.

“Entitlement” could be determined only by following the regimen prescribed by Clauses 2. 5 to 3. 5. There had been no quantification of any amount, as being payable to Respondent No. 1, prior to the termination of the contract. (xiv) The judgement in IVRCL Ltd v. Rail Vikash Nigam 2 Ltd , on which Respondent No. 1 relies, did not take into 3 account the decisions in Simon Carves Ltd v. Ensus UK Ltd and Doosan Babcock Ltd v. Comercializadora de Equiposy 4 Materiales Mabe Limitada , which were relied upon, by the 1 same Hon’ble Judge, in Larsen & Toubro . As such, Larsen & 1 Toubro , being at a later in point of time, was entitled to 2 precedence over IVRCL . (xv) The amount to which the petitioner was entitled, from Respondent No. 1, was far in excess of the cumulative value of the Bank Guarantees submitted by the petitioner. Relying on 2017 SCC OnLine Del 12561 (2011) EWHC 657 (TCC) (2013) EWHC 3201 (TCC) Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM.

) 184/2020 Page 30 of 74 Signing Date:30. 09. 2020 21:35:39 the judgement, rendered by this Bench in Halliburton Offshore 5 Services Inc. v. Vedanta Ltd , the petitioner contends that special equities and irretrievable injustice justify the grant of injunction, under Section 9 of the 1996 Act. I may note, here, 5 that Halliburton Offshore Services Inc. was an ad interim order, rendered by me, which has lost its value as a precedent, as the petition, in which the said order was rendered, was subsequently disposed of, vide a detailed judgement of a coordinate Bench. (xvi) In these circumstances, allowing Respondent No. 1 to invoke, or encash, the Bank Guarantees submitted by the petitioner, would amount to an egregious fraud. 18. To buttress his submissions, Mr. Nayar placed reliance on the judgement of the Supreme Court in Gangotri Enterprises Ltd v. 6 th U. O. I.

, the order, dated 26 July, 2007, of the Division Bench of this Court in FAO (OS) 77/2006 (Satluj Jal Vidyut Vikas Nigam Ltd v. Hindustan Construction Co Ltd), the judgement of the Division Bench of this Court in Satluj Jal Vidyut Nigam Ltd v. Jai Prakash 7 rd Hyundai Consortium read with the order, dated 3 April, 2006, of the Supreme Court in SLP (C) 5456/2006 (Satluj Jal Vidyut Nigam Ltd v. Jai Prakash Hyundai Consortium), the judgement of a learned Single Judge of this Court in Continental Construction Ltd v. Satluj 8 Jal Vidyut Nigam Ltd and the opinions of the Queen’s Bench of the 5 2020 SCC OnLine Del 542 (2016) 11 SCC 720 ILR (2006) 1 Delhi 415 (2006) 1 Arb LR 321 (Delhi) Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 31 of 74 Signing Date:30. 09. 2020 21:35:39 3 High Court of the UK in Simon Carves Ltd and Doosan Babcock 4 Ltd . 19. Mr. Nayar has also submitted that any apprehension, expressed by Respondent No.

1, of difficulty, in recovery, at a later stage, were Respondent No. 1 to succeed in arbitration, is unfounded, as the petitioner is willing to keep its Bank Guarantees alive, pending the decision on the disputes between the petitioner and Respondent No. 1. On the other hand, encashment of the Bank Guarantees, at this stage, is bound to result in irreparable loss and prejudice to the petitioner, who would be handicapped in bidding for other projects. 20. In response, the learned Solicitor General contended thus: (i) The petitioner was not justified in approaching this Court, even when the dispute was pending before the DAB. This, in fact, amounted to circumventing Clauses 20. 2 to 20. 5 of the contract . (ii) Only three extensions, as sought by the petitioner, had been granted by Respondent No. 1, viz.

st (a) on 21 July, 2018, extension of time was granted, th for achieving Milestone 2, till 17 August, 2018, and no extension of time was granted for achieving Milestone 3 or Milestone 4, th (b) on 20 May, 2019, extension of time was granted, th for achieving Milestone 2, till 4 August, 2019, for Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 32 of 74 Signing Date:30. 09. 2020 21:35:39 th Milestone 3 till 20 October, 2019, and for Milestone 4 th till 7 May, 2020, and nd (c) on 22 April, 2020, extension of time was granted, th for achieving Milestone 2, till 6 July, 2020, for th Milestone 3 till 4 October, 2020 and for Milestone 4 till th 18 February, 2021. th As the petitioner had failed to achieve Milestone 2 by 6 July, 2020, despite the three extensions, to achieve the said Milestone, having been granted, the contract was terminated. (iii) The petitioner was issued as many as ten Notices to Correct, under Clause 15. 1 of the Contract.

Details of these rd notices were enlisted in the notice for termination, issued on 3 July, 2020. It was only when, despite the ten Notices, no perceptible improvement was displayed by the petitioner, that it was decided to terminate the contract. Sub-Clause 15. 2(a) of the Contract entitled Respondent No. 1 to do so. Even in its th rd reply dated 13 July, 2020, to the termination notice dated 3 July, 2020, the petitioner had been unable to provide any schedule for completion or any plan for improving the progress of the work. (iv) Clause 15. 2 further stipulated that the election, of Respondent No. 1 to terminate the Contract would not prejudice any of its other rights, under the Contract or otherwise. Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 33 of 74 Signing Date:30. 09. 2020 21:35:39 (v) Clause 15. 3 of the Contract, as amended, specifically stipulated the extent of damages to which Respondent No.

1 would be entitled consequent on termination under Clause 15. 2 “as (1) Forfeiture of Performance Security, (2) Forfeiture of Retention money and (3) five per cent (5%) of the cost of the balance work at the date of termination”. The Clause further stipulated that it was agreed, between the parties, that this represented a reasonable pre-determined amount, and was not by way of penalty. (vi) Clause 15. 4 entitled the employer, i. e. Respondent No. 1, consequent to the notice of termination, under Clause 15. 2 taking effect, to encash and forfeit the entire Performance Security and Retention Money, encash and appropriate the Advance Bank Guarantees, and required Respondent No. 1 to pay, to the Contractor, any sums due under Clause 15. 3 only after the full amount of Performance Security, Retention Money, 5% of the cost of balance work and any other amount due from the Contractor, had been received by Respondent No. 1.

th (vii) A bare reading of the Office Memorandum, dated 13 May, 2020, issued by the Department of Expenditure, Ministry of Finance, made it clear that the amnesty, provided therein, did th not extend to contractors who were in default before 19 February, 2020. Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 34 of 74 Signing Date:30. 09. 2020 21:35:39 (viii) The assertion, of the petitioner, that extension of time had, in all cases, been granted without levying liquidated damages, was not correct. Liquidated damages of ₹ 1. 84 crores were levied, while granting extension of time in respect of Milestone 1. (ix) In any event, non-levying of liquidated damages, while granting extension of time, did not estop Respondent No. 1 from terminating the contract, if otherwise permissible. Nor did it prohibit Respondent No. 1 from invoking, or encashing, the Bank Guarantees furnished by the petitioner. Respondent No.

1 had never abandoned its claim to liquidated or delay damages. 2 Reliance was placed, for this purpose, on IVRCL . (x) While granting extension, in respect of Milestones 2, 3 th and 4, the letter dated 29 January, 2020 clearly stated that no abortive cost claim on account of such extension would be payable, as the delays, in achieving the milestones, were owing to reasons attributable to the petitioner. (xi) Sub-Clause 4. 2(d) of the Contract entitled Respondent No. 1 to terminate the contract even without complying with the procedure stipulated in Clause 15. In view of the consistent failure, on the part of the petitioner, to improve, despite the several notices issued by Respondent No. 1 in that regard, the termination of the contract was justified. Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 35 of 74 Signing Date:30. 09. 2020 21:35:39 (xii) The petitioner has not placed, on record, any quantification, for its alleged claim of ₹ 53. 74 crore.

Respondent No. 1 did not acknowledge any of the claims of the petitioner, and, as already noted hereinabove, had specifically written, to the petitioner, that no abortive cost claim on account of extension would be payable, as the delay in achieving the milestones was attributable to the petitioner. (xiii) The reliance, by the petitioner, on the force majeure clause in the Contract, was also misdirected, as termination of the contract had been effected owing to failure, on the part of the petitioner, to improve its performance, despite several Notices to Correct having been issued, to the petitioner, by Respondent No. 1 under Clause 15. 1 of the GCC. This consistent default entitled Respondent No. 1 to terminate the contract, in accordance with Clause 15. 2. Force majeure, even if it existed, did not divest Respondent No. 1 of the said right, or invalidate its exercise.

(xiv) In fact, it was only after continuously defaulting, despite st several notices having been issued to the petitioner, that, on 31 March, 2020, the petitioner sought, for the first time, to capitalise on the COVID-2019 pandemic, and the situation that has resulted therefrom. (xv) Invocation of bank guarantees could be restrained only in the case of egregious fraud, or irreparable injustice, of the kind which would make it impossible for the guarantor to reimburse Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 36 of 74 Signing Date:30. 09. 2020 21:35:39 himself, or the existence of special equities. No egregious fraud has been alleged by the petitioner. Nor could it be stated that irreparable injustice will ensue, were the bank guarantees encashed, as Respondent No. 1 was a reputed Public Sector Undertaking. Bank guarantees were separate contracts, and were not dispute-centric.

The right to invoke Bank Guarantees was independent of the dispute between the parties. Banks are bound to honour bank guarantees, irrespective of the disputes between the parties. The decisions in Itek Corpn v. First 9 National Bank of Boston and U. P. State Sugar Corporation v. 10 Sumac International Ltd. , on which the petitioner placed reliance, did not advance its case. In fact, the said reliance was 9 self-defeating, as Itek Corpn involved a situation of impossibility, to enforce a decree, passed by American Courts, in Iran. In the present case, the petitioner was engaged in litigation in India, and could not allege, therefore, that it could not execute the award, were it to result in favour of the petitioner, in India. Rather, Respondent No. 1 would find itself unable to execute any award, passed in its favour, in a foreign 9 country. Itek Corpn , therefore, advanced the case of Respondent No. 1, rather than that of the petitioner.

On the principle that courts should be slow in staying the invocation of bank guarantees, the learned Solicitor General placed reliance on Himadri Chemicals Industries Ltd v. Coal Tar Refining 11 12 Co , Vinitec Electronics Pvt Ltd v, HCL Infosystems Ltd , 566 Fed Supp 1210 (1983) (1997) 1 SCC 568 (2007) 8 SCC 110 (2008) 1 SCC 544 Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 37 of 74 Signing Date:30. 09. 2020 21:35:39 13 N. H. A. I. v . Ganga Enterprises and State of Maharashtra v. 14 National Construction Co. . (xvi) Without challenging the legality of the termination of the contract, by Respondent No. 1, the petitioner had sought a restraint against the invocation of the Bank Guarantees furnished by it. This prayer was, therefore, directly contrary to Clause 15. 2(a) of the Contract, as well as to the express stipulation, in Clause 15. 2, that the election, by Respondent No.

1, to terminate the contract would not prejudice any of its other rights, under the contract or otherwise. Following the termination of the contract, invocation and encashment of the Bank Guarantee was triggered by Clause 15. 3, and Clause 15. 4, additionally, entitling Respondent No. 1 to invoke the Bank Guarantees. 1 (xvii) Apropos the judgement in Larsen & Toubro , the learned Solicitor General sought to distinguish the decision, by pointing out that, in the said case, there was a specific finding that defects in the work had been alleged by Respondent No. 1 (in th that case) only on 28 June, 2019, after invocation of the Bank Guarantees. In these circumstances, the learned Single Judge held that “at least prima facie, stage of invoking Sub-Clause 4. 2(d) of the Agreement has also not arisen as on the date of the invocation of the Bank Guarantees.

” In the present case, points out the learned Solicitor General, as many as ten Notices to (2003) 7 SCC 410 (1996) 1 SCC 735 Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 38 of 74 Signing Date:30. 09. 2020 21:35:39 Correct had been issued, before the contract was terminated and the Bank Guarantees were invoked. Attention was once again 2 invited, in this context, to the decision in IVRCL . Analysis Scope of Section 9 of the 1996 Act 21. This Court has, in its recent decision in Avantha Holdings Ltd. 15 v. Vistra ITCL India Ltd. , examined, in detail, the scope of Section 9 of the 1996 Act. From the judgements of the Supreme Court in 16 Ramniklal N. Bhutta v. State of Maharashtra , Raunaq 17 International Ltd v. I. V. R. Construction Ltd , Adhunik Steels Ltd v. 18 Orissa Manganese & Minerals (P) Ltd , Arvind Constructions Ltd 19 v. Kalinga Mining Corporation , Firm Ashok Traders v.

Gurumukh 20 Das Saluja , the judgement of this Court in Olex Focas Pvt. Ltd v. 21 Skoda Export Co. Ltd and of the High Court of Madras in V. Sekar 22 v. Akash Housing – to all of which decisions detailed allusion is to be found in the said judgement – the following principles emerge: (i) Interim measures, per definition, are granted to ensure that the proceedings were not frustrated. 15 MANU/DE/1548/2020 16 (1997) 1 SCC 134 17 (1999) 1 SCC 492 18 (2007) 7 SCC 125 (2007) 6 SCC 798 (2004) 3 SCC 155 AIR 2000 Del 161 AIR 2011 Mad 110 : (2011) 3 Arb LR 327 (Madras) Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 39 of 74 Signing Date:30. 09. 2020 21:35:39 (ii) While exercising power under Section 9, the Court is required to be mindful of the fact that concurrent power is vested in the Arbitral Tribunal, by Section 17.

The reliefs which can be granted under Section 17, by the Arbitral Tribunal, are identical to those which can be granted by the Court under Section 9. While, therefore, exercising jurisdiction under Section 9, the Court, even at the pre-arbitration stage, should not usurp the jurisdiction which, otherwise, would vest in the arbitral tribunal, even if it is yet to be constituted. Hence, litigants would be in a position to misuse Section 9 as providing an opportunity to forum shop. (iii) Subject to the above, the principles governing the grant of interim relief, under Section 9, are the same as those which govern the exercise of such power under Order XXXIX of the Code of Civil Procedure, 1908 (CPC), i. e. , the existence of a prima facie case in favour of the applicant, the balance of convenience being in favour of the grant of such interim relief, and the likelihood of irreparable prejudice, or loss, resulting, were interim relief not to be granted.

Additionally, public interest is also a factor to be borne in mind. (iv) Even the conjoint existence of these factors, however, would not, ipso facto, make out a case for the grant of interim protection under Section 9. Additionally, the Court has to satisfy itself that the reliefs, sought in the Section 9 petition, cannot await a Section 17 proceeding, before a duly constituted arbitral tribunal. Emergent necessity of ordering interim Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 40 of 74 Signing Date:30. 09. 2020 21:35:39 protection is, therefore, also a factor to be borne in mind, while exercising jurisdiction under Section 9.

(v) As a result, the criteria, which are required to be satisfied, before interim protection can be granted under Section 9 are (a) the existence of an arbitration clause, and manifest intent, of the Section 9 petitioner, to invoke the said clause, and initiate arbitral proceedings, (b) the existence of a prima facie case, balance of convenience and irreparable loss, justifying such grant of interim relief to the applicant, and (c) the existence of emergent necessity, so that, if interim protection is not granted by the Court, even before arbitral proceedings are initiated and the chance to approach the arbitral Tribunal under Section 17 manifests itself, there is a possibility of the arbitral proceedings being frustrated or rendered futile. Power to stay invocation of a Bank Guarantee 22. On the issue of the power of the court to stay invocation of bank guarantees, the learned Solicitor General has placed reliance on 11 12 Himadri Chemicals , Vinitec Electronics , N. H. A. I. v.

Ganga 13 14 Enterprises and National Construction Co . Additionally, the 9 learned Solicitor General has submitted that Itek Corpn , in fact, advanced the case of the respondent, rather than that of the petitioner. Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 41 of 74 Signing Date:30. 09. 2020 21:35:39 11 23. Himadri Chemicals is an important judgement, in this canon. Para 14 of the report, in the said case, enumerates the following six principles, governing the grant of injunction against the invocation of unconditional bank guarantees: “(i) While dealing with an application for injunction in the course of commercial dealings, and when an unconditional Bank Guarantee or Letter of Credit is given or accepted, the Beneficiary is entitled to realize such a Bank Guarantee or Letter of Credit in terms thereof irrespective of any pending disputes relating to the terms of the contract.

(ii) The Bank giving such guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer. (iii) The Courts should be slow in granting an order of injunction to restrain the realization of a Bank Guarantee or Letter of Credit. (iv) Since a Bank Guarantee or Letter of Credit is an independent and a separate contract and is absolute in nature, the existence of any dispute between the parties to the contract is not a ground for issuing an order of injunction to restrain enforcement of Bank Guarantee or Letter of Credit. (v) Fraud of an egregious nature which would vitiate the very foundation of such a Bank Guarantee or Letter of Credit and the beneficiary seeks to take advantage of the situation. (vi) Allowing encashment of an unconditional Bank Guarantee or Letter of Credit would result in irretrievable harm or injustice to one of the parties concerned. ” 24.

The learned Solicitor General also placed reliance on Vinitec 12 Electronics which, in turn, took note of the earlier decisions in U. P. 10 23 State Sugar Corporation , B. S. E. S. Ltd v. Fenner India Ltd , (2006) 2 SCC 728 Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 42 of 74 Signing Date:30. 09. 2020 21:35:39 11 Himadri Chemicals and Mahatma Gandhi Sahakara Sakkare 24 Karkhane v. National Heavy Engineering Coop. Ltd , and proceeded to hold thus (in paras 11, 12 and 14 of the report): “11. The law relating to invocation 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 Corpn. v. Sumac International Ltd. , (1997) 1 SCC 568 this Court observed that: (SCC p. 574, para 12) “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 (2007) 6 SCC 470 Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 43 of 74 Signing Date:30. 09. 2020 21:35:39 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. [(2006) 2 SCC 728] this Court held: (SCC pp. 733-34, para 10) “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 judgments of this Court, that in U. P. State Sugar Corpn. v. Sumac International Ltd. , (1997) 1 SCC 568 this Court, correctly declared that the law was ‘settled’. ” ***** 14. In Mahatma Gandhi Sahakra Sakkare Karkhane v. National Heavy Engg. Coop. Ltd. , (2007) 6 SCC 470 this Court observed: (SCC p. 471b-d) “If the bank guarantee furnished is an unconditional and irrevocable one, it is not open to the bank to raise any objection whatsoever to pay the amounts under the guarantee. The person in whose favour the guarantee is furnished by the bank cannot be prevented by way of an injunction from enforcing the guarantee on the pretext that the condition for enforcing the bank guarantee in terms of the agreement entered into Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 44 of 74 Signing Date:30. 09. 2020 21:35:39 between the parties has not been fulfilled.

Such a course is impermissible. The seller cannot raise the dispute of whatsoever nature and prevent the purchaser from enforcing the bank guarantee by way of injunction except on the ground of fraud and irretrievable injury. What is relevant are the terms incorporated in the guarantee executed by the bank. On careful analysis of the terms and conditions of the guarantee in the present case, it is found that the guarantee is an unconditional one. The respondent, therefore, cannot be allowed to raise any dispute and prevent the appellant from encashing the bank guarantee. The 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. ” (Paras 22 and 28)” (Underscoring supplied; italics in original) 25.

The following principles clearly emerge from the decision in 12 Vinitec Electronics : (i) Bank guarantees, which are payable on demand by the guarantor, are unconditional bank guarantees. (ii) Unconditional bank guarantees entitled the guarantor to realisation thereof, irrespective of any pending disputes. In fact, disputes between the guarantor, and the parties, at whose instance the bank has given the guarantee, are immaterial and of no consequence. Enforcement of the guarantee cannot be injuncted on the pretext that the condition for enforcing the bank guarantee, in terms of the agreement between the parties, has not been fulfilled. What is relevant are the terms Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 45 of 74 Signing Date:30. 09. 2020 21:35:39 incorporated in the guarantee (and not those in the agreement between the parties).

The mere fact that the bank guarantee refers to the principal agreement, without referring to any specific clause, does not make the bank guarantee conditional. (iii) Courts should, therefore, be slow in injuncting realisation of unconditional bank guarantees. (iv) The only exceptions, to this general rule, are where there exist/exists (a) fraud of an egregious nature, or (b) irretrievable injustice resulting to the parties, at whose instance the bank gave the guarantee, were the injunction not granted, or (c) special equities, of which the possibility of irretrievable injustice is itself one. (v) “Irretrievable injustice”, for this purpose, has to be of such an exceptional nature as would override the terms of the guarantee and the adverse effect of the grant of such injunction on commercial dealings in the country. 12 26.

The Court, in Vinitec Electronics proceeded, thereafter, to examine whether the bank guarantee, forming the subject matter of the controversy before it, was conditional or unconditional, and the discussion, in the judgement, on this aspect, is instructive. Paras 17, 18 and 19 of the report deserve, in this context, to be reproduced in extenso: Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 46 of 74 Signing Date:30. 09. 2020 21:35:39 “17. The relevant clause in the bank guarantee dated 10-8- 2001 furnished by the appellant is to the following effect: “Whereas M/s Vinitec Electronics Pvt. Ltd. , H-33, Bali Nagar, New Delhi (hereinafter called ‘the supplier’) supplied their Vinitec online UPS systems of various capacities pursuant to their agreement dated 10th May, 2000 and PO No.

4500011730 dated 30-5-2000 (hereinafter called ‘the Company’) for the final purchaser President of India through the Director, National Crime Records Bureau, Ministry of Home Affairs, Government of India, New Delhi (hereinafter called ‘the purchaser’). Whereas in terms of Clause 15 of the agreement for receiving the entire balance payments of Rs 49,99,335 from the company, the supplier has agreed to provide a performance bank guarantee equivalent to Rs 16,81,238. 50 as 10% of the value of the contract to be kept valid till the warranty period during which time the supplier is required to perform their warranty obligations to the purchaser; and Whereas pursuant to the application made by the supplier, we, Oriental Bank of Commerce, Kirti Nagar, New Delhi (hereinafter called ‘the Bank’) have accordingly agreed to give the supplier a bank guarantee for the aforesaid purpose.

Therefore, we, the Bank, hereby affirm that we are guarantors and responsible on behalf of the supplier up to a total of Rs 16,81,238. 50 (Rupees sixteen lakhs eighty-one thousand two hundred thirty-eight and paise fifty only) and we undertake to pay any sum or sums within the limit of Rs 16,81,238. 50 (Rupees sixteen lakhs eighty-one thousand two hundred thirty-eight and paise fifty only) as aforesaid upon receipt of written demand from the purchaser and Company within the validity of this bank guarantee establishing the supplier to be in default for the performance of their warranty obligations under the contract. We, the Bank, affirm that our liability under this guarantee is limited to the total amount of Rs 16,81,238. 50 (Rupees sixteen lakhs eighty-one Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 47 of 74 Signing Date:30. 09.

2020 21:35:39 thousand two hundred thirty-eight and paise fifty only) and it shall remain in full force up to and including 31st August, 2003 and shall be extended from time to time for such further period(s) as desired by the purchaser, Company and supplier on whose behalf this guarantee has been given. ” 18. Thereafter by a letter dated 20-8-2001, the bank guarantee was amended and Para 4 of the bank guarantee dated 10-8-2001 was substituted and the same reads as under: “Therefore, we, the Bank, hereby affirm that we are guarantors and responsible on behalf of the supplier up to a total of Rs 16,81,238. 50 (Rupees sixteen lakhs eighty-one thousand two hundred thirty-eight and paise fifty only) and we undertake to pay any sum or sums within the limit of Rs 16,81,238. 50 (Rupees sixteen lakhs eighty-one thousand two hundred thirty-eight and paise fifty only) as aforesaid upon receipt of written demand from the Company within the validity of this bank guarantee. ” 19.

In the unamended bank guarantee the Bank affirmed that they are guarantors and responsible on behalf of the supplier up to a total of Rs 16,81,238. 50 (Rupees sixteen lakhs eighty-one thousand two hundred thirty-eight and paise fifty only) and had undertaken to pay any sum or sums within that limit upon receipt of written demand from the purchaser within the validity of bank guarantee provided it is established that the supplier be in default for the performance of their warranty obligations under the contract. This makes it abundantly clear that what was furnished was a conditional bank guarantee and the bankers were liable to pay the amounts only upon establishing the fact that the supplier was in default for the performance of their warranty obligations under the contract. But by the subsequent letter dated 20-8- 2001, the relevant clause in bank guarantee was amended whereunder the Bank stood as guarantor and responsible on behalf of the supplier up to a total of Rs 16,81,238.

50 (Rupees sixteen lakhs eighty-one thousand two hundred thirty-eight and paise fifty only) and had undertaken to pay any sum or sums within that limit “upon receipt of written demand from the Company within the validity of this bank guarantee”. This amended clause makes it abundantly clear Signature Not Verified Digitally Signed By:SUNIL O. M. P. (I) (COMM. ) 184/2020 Page 48 of 74 Signing Date:30. 09. 2020 21:35:39 that the Bank had undertaken to pay amounts up to a total of Rs 16,81,238. 50. The condition that the amounts shall be paid only upon establishing the supplier to be in default for the performance of their warranty obligation under the contract has been specifically deleted. In our considered opinion, the bank guarantee as amended replacing Para 4 of the original bank guarantee makes the bank guarantee furnished as unconditional one. The bankers are bound to honour and pay the amounts at once upon receipt of written demand from the respondent. ” (Emphasis supplied) 27.

These paras illustrate, lucidly, the distinction between a conditional bank guarantee and an unconditional bank guarantee. The 12 judgement in Vinitec Electronics makes it abundantly clear that the first aspect, to be taken into consideration, is the bank guarantee itself, and the terms thereof. If the bank guarantee is conditional, then, if the conditions have not been fulfilled, injunction, against encashment and invocation, may unquestionably follow. If, however, the bank guarantee is unconditional, then injunction can be granted only if egregious fraud, irretrievable injustice, or special equities, exist, and not otherwise. 28. The issue was revisited, by the Supreme Court, in its more recent decision in Stand

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