The Petitioners and the Respondents entered into two contracts dated 2nd September 2011 wherein the Petitioners were allotted the work of construction, development, and successfully commissioning of a Polyethylene Unit (PE Unit) and the Polypropylene Unit (PP Unit). The term of the contracts was twenty-eight months for execution and the Petitioners were under an obligation to produce bank guarantees as under Clause 3.3 and 3.8 of the General Conditions of Contract (“GCC”) of the said contracts. Out of the five bank guarantees, two were advanced bank guarantees to secure mobilization of the advance paid by the Respondent and three were performance bank guarantees for execution and performance of the contracts.

The scheduled date of completion of the commissioning of both the Units as per the contracts was on or before 2nd October 2013. But in fact, the two units were commissioned on 14th April 2017 and 12th February 2017 respectively. The Petitioners issued arbitration notices in lieu of disputes arising between the parties after attaining the commissioning certificates for the Units.

The Petitioners claimed for damages on account of delay on the part of the Respondents in completing and commissioning of the project. Whereas, the Respondents had filed counterclaims seeking Liquidated Damages for the delay in commissioning both the Units attributable to the Petitioners and also for losses and damages incurred by the Respondents on account of defects and damages discovered in the PE Unit and claim on Performance Guarantee Test Runs (PGTR). The Arbitral Tribunal speaking through majority allowed the claims of the Petitioners and rejected the counter-claims submitted by the Respondent through an award dated 6th January 2020. Therefore, the Respondents had challenged the said award under Section 34 of the Arbitration & Conciliation Act, 1996 which is pending consideration before the High Court of Delhi.

The Respondent invoked the Bank Guarantees during the pendency of the proceedings aggrieved by which the Petitioners approached the Court. The Court directed the Petitioners to extend the validity of the Bank Guarantees for a period of one month. When the said petition was listed on 23rd March 2020, the Court on the submissions made by the Respondents, directed that the amount allotted under the Arbitral Award shall be paid by the Respondents to the Petitioners subject to the Petitioners furnishing Bank Guarantees for the said amount which shall sustain till further orders by the Court.

The Petitioner denied an extension of the validity of the Bank Guarantees when demanded by the Respondent and therefore, the Respondent through a Letter put forth their decision to invoke them. Aggrieved by the same, the Petitioners approached the High Court of Delhi under Section 9 of the Act seeking an interim injunction against such invocation of Bank Guarantees.

Issues

The following were the issues in the present case :

1. Whether the Respondent who had lost the arbitral proceedings and had all its counter-claims in relation to the performance of the contract rejected by the Arbitral Tribunal, can seek an extension of the Bank Guarantees furnished by the Petitioners for the performance of the contracts pending adjudication of the Respondent’s petition under Section 34 of the Act challenging the Award?
2. Whether the Petitioners were able to demonstrate that Bank Guarantees should be injuncted by the Court by meeting the twin test for the grant of an injunction restraining the invocation of Bank Guarantees?

Judgment

The High Court permitted the petition and restrained the Respondent from invoking and encashing the Bank Guarantees as referred to in the prayer clause. It is also directed that the Respondent shall return the said Bank Guarantees to the Petitioners. The Court stated that the Arbitral Award of the Tribunal endures to the benefit of the Petitioners, being the successful party. It is the successful party who can seek its enforcement under Section 36 of the Act and also secure the Award under Section 9 of the Act and not the Respondent being the losing party.

The Court relied on the Apex Court judgment of the Dirk India Private Limited vs. MSEGC (2013) 7 Bom. CR 493 wherein it was held that;

“What such a litigating party cannot possibly obtain even upon completion of the proceedings under Section 34, it cannot possibly secure in a petition under Section 9 after the award. The object and purpose of Section 9 are to provide an interim measure that would protect the subject-matter of the arbitral proceedings whether before or during the continuance of the arbitral proceedings and even thereafter upon conclusion of the proceedings until the award is enforced. Once the award has been made and a claim has been rejected as in the present case, even a successful challenge to the award under Section 34 does not result in an order decreeing the claim.”

Moreover, by rejecting the Respondents’ first claim, the Court observed that the said judgment shall have no applicability to litigation under the Insolvency & Bankruptcy Code, 2016.

Furthermore, it rejected the Petitioners’ assertion that the entire Scope of Work under the Contracts was completed as not correct. It stated that the Petitioners’ entire technical team abandoned the Respondents’ Dahej Plant during the pendency of the arbitration proceedings without any proper intimation to the Respondents without completing the entire Scope of Works including Performance Guarantee Test Runs (PGTR) of the Polypropylene Unit (PP Unit) and closure of punch points and others. In spite of several requests from the Respondents, the Petitioners flagrantly failed and neglected to supply the complete set of mandatory spares as agreed under the Contracts.

The Court stated that the Respondent by invoking the Bank Guarantees intended to secure counter-claims which were earlier rejected by the Arbitral Tribunal, which was clearly impermissible in view of the position of law. It termed the Respondents’ argument of the Arbitral Award if set aside, the Respondent will be able to invoke the Bank Guarantees to satisfy its claims without resorting to arbitration or Court to be a fallacious argument.

It stated that even if the Respondent succeeds in its petition filed under Section 34 of the Act, the setting aside of the Arbitral Award does not result in the same being decreed in its favor. It would be open to the Respondent to commence fresh proceedings against the Petitioners. The Court also settled that if a plea to extend the validity of Bank Guarantees was allowed, every party even after losing before the Arbitral Tribunal, on the pretext that the Bank Guarantees cannot be injuncted or it shall deposit the amount in the Court, shall achieve what it could not achieve before the Arbitral Tribunal through its claims or counterclaims.