Calcutta High Court: Injunction Against Invocation Of Bank Guarantee Can Be Granted U/s. 9 Arbitration Act If Prima Facie Case Made Out

The Calcutta High Court has held that although relief of injunction against invocation of bank guarantee is not ordinarily given, the same can be granted under Section 9 of the Arbitration & Conciliation Act, 1996 if prima-facie case is made out.

The Court was considering an Application for interim reliefs under Section 9 of the Arbitration and Conciliation Act, 1996.

The bench of Justice Shampa Sarkar held,"There is no quarrel with the proposition of law that, injunction against invocation of bank guarantee should not ordinarily be issued. The parties before this Court had entered into an agreement which contains an arbitration clause. There are live disputes. As such, an application under Section 9 of the Arbitration and Conciliation Act for interim protection, is maintainable before the Court.........This Court cannot ignore the fact that some kind of protection is to be given to the petitioner in aid of the final relief." 

The Applicant was represented by Advocate Suvasish Sengupta while the Respondent was represented by Advocate Debrup Bhattacharje.

Facts of the Case

The Petitioner and the Respondent entered into an agreement named and styled as “Goods & Service Order”, and in terms of the same, core curing oven was to be supplied to the Respondent. The oven was to be manufactured upon approval of the specifications and drawings and was to be delivered within 60 days from the date of receipt of the confirmed order and advance payment.

As per the purchase order, the Respondent was obliged to pay 50% advance, against the submission of an advance bank guarantee of equal value which would be valid up to the delivery of the complete materials at the site of the Respondent. It was further agreed that balance 50% would be paid after inspection by the engineers of the Respondent and prior to despatch, the Petitioner was obliged to submit 20% bank guarantee which would be valid up to 12 months after the final installation. An amount of Rs.50 lakhs was transferred to the account of the Petitioner on September 27, 2023 as advance payment and the Petitioner furnished an Advance Bank Guarantee (ABG) of the like amount. According to the Petitioner, although the oven was lying ready for delivery on October 27, 2023, the Respondent failed to take delivery of the same and didn't inform the Petitioner the reason for it. The Petitioner apprehends that the respondent may, at any point time, invoke the ABG and such action will put the Respondent in an irreversible situation, in as much as, the oven which was manufactured upon huge investment by the petitioner will remain unutilized and the Petitioner will suffer irreparable loss and injury in not being paid for the work done on the basis of the purchase order.

Counsel for the Petitioner submitted that the said purchase order contains a dispute resolution clause, for resolution of disputes by Arbitration and therefore the present petition has been filed seeking relief of injunction.

On the other hand, Counsel for the Respondent submitted that there cannot be an injunction against invocation of a bank guarantee as the same is a separate agreement between the bank and the beneficiary. It was contended that the Respondent has a right to invoke the bank guarantee, irrespective of the contract between the parties. Reliance was placed on the Court's decision in Hindusthan Paper Corporation Ltd. Vs. Keneilhouse Angami.

It was further submitted that there are a number of business transactions between the parties and this is one of such purchase orders amongst many, which has given rise to a dispute. The reliefs claimed in the application are in the nature of final reliefs and cannot be allowed.

Reasoning By Court

The Court was of the view that although relief of injunction against invocation of bank guarantee is not ordinarily given, it has to look whether it can be given under Section 9 of the Arbitration and Conciliation Act for interim protection.

"This Court cannot ignore the fact that some kind of protection is to be given to the petitioner in aid of the final relief. The reliefs claimed herein are more or less in the nature of final relief, but the petitioner cannot be expected to suffer losses at the whims of the respondent. A purchase order was placed by the respondent. Specifications and drawings were approved by the respondent. The petitioner manufactured the oven, but the respondent did not take delivery of the same. The respondent failed to assign reasons as to why the oven was not taken by the respondent. The advance payment of 50% was made subject to the petitioner furnishing a bank guarantee of a similar amount. The ABG is to remain valid till delivery of the product. Thus, delay is taking delivery will keep the ABG alive and the petitioner will be at a risk of invocation, and at the mercy of the respondent," the Court observed.

It was stressed that as long as the Petitioner makes out a case for interim protection, till the issues are decided by the Arbitrator, the Court should not hesitate to grant such reliefs and protection

The Court concluded that the conduct of the Respondent gives rise to an apprehensive that the bank guarantee can be invoked at any point of time and pointed out that it would have been a different case altogether, in the event a single document was produced by the Respondent, indicating that the Petitioner had been cautioned or warned that there was either delay in manufacture of the product or that the end product was not as per the drawing and specification approved by the Respondent. 

"Under such circumstances, a strong, prima facie, case has been made out. The Court directs that, in the event the respondent invokes the bank guarantee of Rs.50 lakhs, the amount of Rs.50 lakhs shall be deposited with the learned Registrar, Original Side, High Court, Calcutta for a period of three months. In the meantime, the petitioner shall invoke the arbitration clause and thereafter the parties will be at liberty to approach the learned Arbitrator for further interim reliefs. The fate of the money, if deposited upon invocation of bank guarantee as directed herein above, shall be decided by the learned Arbitrator," the Court observed.

The Petition was accordingly disposed of.

Cause Title: Gallant Equipment Pvt. Ltd. vs. Rashmi Metaliks Ltd.

Appearances:

Petitioner- Advocate Suvasish Sengupta, Advocate Sanjib Bandyopadhyay, Advocate Sounak Banerjee, Advocate Rohit Das

Respondent- Advocate Debrup Bhattacharjee

Click here to read/ download Judgment