21 November 2022


High Court of Delhi

Sabarkantha Annuity Pvt. Ltd. Vs. NHAI and Ors.




Merits and the terms of contract are irrelevant for invoking of the bank guarantees

The Petitioner has filed present petition under Section 9 of the Arbitration and Conciliation (Amendment) Act, 2015 with a prayer that, Respondents be restrained from acting upon the letter dated 15th September, 2017 or from invoking the Bid securities of the Petitioner to the tune of Rs. 10.93 Crores and also restraining the Respondent Nos. 2 to 4 from honouring the invocation of said bank guarantees on behalf of Respondent No. 1 acting in terms of letter dated 3rd November, 2007. Petitioner now in present round of litigation, has relied upon Clauses Nos. 9.1.1, 9.1.2 and 4.3 of the agreement dated 28th April, 2017 entered into between the parties to say the claim for damages since is not a claim for a sum presently due and payable and the respondent would be entitled to damages only on proof of loss, per Clause 4.3 of the agreement and hence is not entitle to the entire sum of bid security.

Clause No. 9.1.2 speaks of an exclusive right of the authority to encash the bid security. It opens with a non-obstante clause saying notwithstanding anything contrary contained in this agreement if the performance security is not provided within a period of thirty days from the date of the agreement the authority can encash the bid security and appropriate the proceeds thereof as damages and the rights of the concessionaire under or arising under the agreement shall be deemed to have been waived off and this agreement is deemed to have been terminated by the mutual agreement between the parties.

Clause No. 9.1.2 shows that, invocation of Bid security and appropriating its proceeds is independent of Clause No. 4.3. The question, if any, damages accrue or not shall be a question within the domain of arbitration, if invoked. At this stage, the Court needs to see whether the Petitioner failed to submit performance securities in time per provisions of the agreement.

The law qua encashment of bank guarantee is well settled. It being an independent contract and lest any fraud or irretrievable loss to the Petitioner is alleged, no stay can be granted by the Court. The merits and the terms of contract are irrelevant for invoking of the bank guarantees. At this stage, one can only go through the terms of the bank guarantee to find if any fraud was committed while entering into such contract and nothing beyond.

Admittedly, it is not a case where Petitioner has alleged fraud or an irretrievable injustice would be caused to him if Bid Security is encashed, the Respondent being National Highways Authority of India, a government company/undertaking. The Petitioner had already availed of remedy of writ jurisdiction and has even gone in appeal on merits before the Division Bench of this Court with prayer(s) that, the Respondent should not encash the Bid Security. The Division Bench rather dismissed the appeal without grant of any liberty of avail Section 9 remedy which the learned Single Judge had initially accorded to the Petitioner. In these circumstances allowing this application would be against the spirit of order of Division Bench of this Court.

Further in KV George v. Secretary of the Government and Vivek Jain v. UOI, it was held the issues decided by writ court would act as a bar from reopening of such questions in the civil court on principles of res-judicata. Further in Executive Engineer, ZP Engineering Division and another v. Digambara Rao and others, it was held if the whole claim was not laid before the writ jurisdiction then also the petitioner would be barred from raising it later in civil Court per Order 2 Rule 2 of Code of Civil Procedure, 1908 (CPC). There is no merit in petition and the same is dismissed.


KV George v. Secretary of the Government MANU/SC/0253/1989
: (1989) 4 SCC 599 and Vivek Jain v. UOI MANU/DE/0360/1989
: AIR 19898 Delhi 301, Executive Engineer, ZP Engineering Division and another v. Digambara Rao and others MANU/SC/0825/2004
: (2004) 8 SCC 262

Tags : Bank guarantee Encashment

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