Memorial of a moot court

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IN THE HONOURABLE SUPREME COURT OF INDIA

NEW DELHI

CCIVILIVIL A APPEALPPEAL N NOO. ......../2010. ......../2010

IINN T THEHE M MATTERATTER O OFF

M/S BRIGHT ENERGY LTD........................................................................................ (APPELLANT)

V.

M/S SHANTI VIGYAN LTD........................................................................................ (R........................................................................................ (RESPONDENTESPONDENT))

WRITTEN SUBMISSION ON BEHALF OF THE APPELLANT

COUNSEL FOR THE APPELLANT

WRITTEN SUBMISSION ON BEHALF OF APPELLANT PAGE 1

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TABLE OF CONTENTS

LIST OF ABBREVIATIONS………………….……………………..3

INDEX OF AUTHORITIES………………………………………….4

STATEMENT OF JURISDICTION..............................................8

STATEMENT OF FACTS……………………………………………9

ISSUES RAISED...................................................................................10

SUMMARY OF ARGUMENTS..............................................................11

ARGUMENTS ADVANCED..................................................................13

PRAYER.............................................................................................23


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LIST OF ABBREVIATIONS

1. & - And

2. § - Section

3. AIR - All India Reporter

4. Anr.- Another

5. Arb. LR- Arbitration Law Reporter

6. Art. - Article

7. Co.- Company

8. Edn. - Edition

9. GOI - Government of India

10. Govt.- Government

11. Hon’ble - Honourable

12. Ltd. - Limited

13. Ors. – Others

14. p .- Page

15. Para - Paragraph

16. SC - Supreme Court

17. SCC - Supreme Court Cases

18. SCR - Supreme Court Reporter

19. Supp - Supplement

20. UOI - Union of India

21. v. - Versus

22. Vol. – Volume


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INDEX OF AUTHORITIES

LIST OF CASES

1. ACC Babcock v Straw Productiond Ltd., AIR Del 237, (1985)

2. Ambala Bus Syndicate (P) Ltd. v. Bala Financiers Ltd., 2 SCC 322, (1983)

3. Banwari Lal Radhe Mohan v. Punjab State Co-op Supply and Marketing Federation

AIR (Delhi) 357 (1982)

4. Baraji Trading Co v. Veeraswami,1 AN. WR 28, (1980)

5. Basic Tele Services Ltd v. Union of India, AIR (Delhi) 1, (2000)

6. Board of Secondary Education, Manipur v. C.W. Leiyachan, 10 SCC 42, ( 2001)

7. BSES Ltd v. Fenner India Ltd (2006) 1 Arb. LR 388 (SC)

8. Centax (India) Ltd v. Vinmar Impex Inc., AIR SC 1924, (1986)

9. Centax India Ltd v Vinmar impex Inc, AIR SC 1924, (1986)

10. Chola Turbo Machinary International Pvt. Ltd. v. Development credit Bank and

Another, 1 Arb. LR (Delhi) 540, (2008 )

11. Collector of Customs v. Madras Rubber Factory, 5 SCC 439, (1995)

12. Commercial Bank v. Bank of India 2 SCC 766, (1981): AIR SC 1426, (1981)

13. Damodar Paints Pvt Ltd v Indian oil Corporation Ltd, AIR (Delhi) 57, (1982)

14. Deytsche Ruckversicherung AG v. Walbrook Insurance Co Ltd., 4 All ER 181, (1994)

15. DTH Constn Pvt Ltd v Steel Authority of India Ltd., AIR Cal 31, (1986 )

16. Dwarikesh Sugar Inds Ltd v Prem Heavy Engg Works, AIR SC 2477, (1997)

17. Edward Owen Engg Ltd v. Barclayes Bank Ltd, 3 WLR 764, (1973);

18. Edward Owen Engg Ltd v. Barclays Bank Intl Ltd., 1 ALL ER 976, 986 (1978)

19. Engineering Mazdoor Sabha v.Hind Cycles Ltd., AIR SC 874, (1963)

20. Essar Oil Ltd v Oil India Ltd and Another, 1 Arb LR (Del) 2000, (1998)

21. General Electric Technical Services Company Inc. v Punj Sons (P) Ltd and another, 2

Arb. LR SC 173, (1991)

22. Harburg India Rubber Comb Co v. Martin, 1 K.B. 778, 784 (1902)

23. Himadri Chemicals Industries Ltd v. Coal Tar Refining Corporation, 3 Arb. LR (SC)

139, (2007)

24. Hindustan copper Ltd v Rana Builders Ltd, AIR Cal 229, (1999)

25. Hindustan Steel Works Const Ltd v. Tarapore & Co., AIR SC 2268, (1996)

26. Hindustan steelworks corpn Ltd v. Tarapore and Co 5 SCC 341, (1966)


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27. Hindustan steelworks corpn Ltd v. Tarapore and Co., 5 SCC 341, (1966)

28. Jaswant Sugar Mills Ltd. v. Lakshmi Chand, AIR SC 677, (1963)

29. Joginder Nath Gupta v. Satish Chander Gupta, 2 SCC 325, (1983)

30. Kalyanpur Limeworks v. State of Bihar, AIR Pat 226, (1951)

31. Kirloskar Pneumonic Co Ltd v. National Thermal Power Corp. Ltd., AIR Bom. 308,

(1987)

32. Kisan Sahakari Chini Mills Ltd v. Richardson and Cruddas, AIR Bom 35, (1997)

33. Lakeman v. Mountstephen , 7 L.R H.L 17, 24 (1874)

34. Larsen & Toubro Ltd v Maharashtra State Electricity Board, 6 SCC 68, (1995)

35. Mahatma Gandhi Sahakra Sakkare Karkhane v. National Heavy Engg. Coop Ltd. And

Anr., 3 Arb. LR SC 78 (2007) ;

36. Mukharia Bros v State of Nagaland, 10 SCC 503, (2000)

37. National Thermal Power corporation Ltd v. Hind Galvanizing and Engg Co Ltd, AIR

Cal 421, (1990)

38. NHAI v. ELSAMEX-TWS-SNC Joint Venture, 1 Arb. LR (Delhi) 559, (2008)

39. Pandnav v. Dhableshwar, 40 CLT 1337, (1974)

40. Pishora Singh v. Smt Lajobai, Rev LR 644, (1974)

41. Ram Chandra Panda v. Lok Nath Panda, 1 CWR 138, (1978)

42. Satwan Singh v. State Of Rajasthan, AIR SC 715, (1961)

43. Shankar Motiram Nale v. Shiolasing Gannusing Rajput, 2 SCC 753, (1994)

44. Shankarlal Devi Prasad v. State of M.P, MPLJ 419, (1978)

45. State of Maharashtra v. National Const. Co., AIR SC 2367, (1996)

46. State Trading Corpn of India ltd v. Golodetz Ltd, 2 Loyd’s Rep 277, (1989)

47. Sundaram Finance Ltd v NEPC India LTD (1999) 2 SCC 479,487

48. Syndicate Bank v. Vijay Kumar, AIR SC 1066, (1992)

49. Tarapore and Co. v. V.O. Export AIR SC 1168, (1970) ; Union of India v. Swadeshi

Cotton Mills Co. Ltd., 4 SCC 295, (1978)

50. Trinath Harichandan v. Chairman, Paradeep Port Trust, 3 SCC 113, 7(1998)

51. U.P Cooperative federation Ltd. v Singh Consultants and Engineers (P) Ltd., 1 SCC

174, (1988)

52. U.P. Co-operative Federation Ltd v. Singh Consultants and Engineers (P) Ltd., 2 Arb.

LR SC 279, (1987)

53. U.P. State Sugar Corporation v. M/s. Sumac International Ltd., AIR SC 1644, (1997)

54. Union of India v. Era Educational Trust 5 SCC 57, (2000)


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55. Union of India v. M.C. Desai, (1996) 11 SCC 400

56. Unique Allaince Industries, Goa v. Anupama Agencies, Trichur, AIR Ker 52, 54

(1995)

57. United City Merchants (Investments) Ltd v. Royal Bank of Canada, 2 ALL ER 720,

728 (1982) Federal Bank Ltd v. VM Jon Engg Ltd, AIR SC 3166, ( 2000)

58. Upadhyay & Co. v. State of U.P.,1 SCC 81,11, (1999)

59. Uttar Pradesh Co-op Federation Ltd v. Singh Consultants and Engrs Pvt Ltd, 1 SCC

174, (1988)

60. Videocon Properties Ltd. v. Dr. Bhalchandra Laboratories, 3 SCC 711, (2004)

61. Vinay Engineering v. Neyveli Lignite Corporation Ltd., AIR Mad 213, 219 (1985)

LIST OF BOOKS

1. AVTAR SINGH, LAW OF ARBITRATION AND CONCILIATION (EASTERN BOOK

COMPANY LUCKNOW 2005).

2. AVTAR SINGH, CODE OF CIVIL PROCEDURE (CENTRAL LAW AGENCY ALLAHABAD

2009).

3. DURGADAS BASU, CONSTITUTIONAL LAW OF INDIA (WADHWA AND COMPANY NEW

DELHI, 2004).

4. G.S GUPTA, LAW OF INJUNCTIONS (ORIENT PUBLISHER NEW DELHI, 2005).

5. H.C JOHARI, COMMENTARY ON ARBITRATION AND CONCILIATION ACT, 1996

(KAMAL BOOK HOUSE KOLKATA 2002).

6. H.K SAHARAY, LAW OF ARBITRATION AND CONCILIATION (EASTERN LAW HOUE

KOLKATA 2001).

7. JUSTICE R.S BACHAWAT, LAW OF ARBITRATION AND CONCILIATION (WADHWA AND

COMPANY NAGPUR 2005).

8. M.P JAIN, INDIAN CONSTITUTIONAL LAW (WADHWA AND COMPANY NAGPUR 2003).

9. N.D BASU, LAW OF ARBITRATION AND CONCILIATION (ORIENT PUBLICATIONS NEW

DELHI 2006).

10. N.K ACHARYA, LAW RELATING TO ARBITRATION & A.D.R (ASIA LAW HOUSE

HYDERABAD 2006)

11. O.P MALHOTRA, LAW AND PRACTICE OF ARBITRATION AND CONCILIATION (LEXIS

NEXIS BUTTERWORTHS NEW DELHI 2006).


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12. REGA SURYA RAO, LECTURES ON ARBITRATION CONCILIATION AND ALTERNATIVE

DISPUTE RESOLUTION SYSTEMS (ASIA LAW HOUSE HYDERABAD 2006).

13. SURENDRA MALIK, SUPPLEMENT TO SUPREME COURT ON ARBITRATION ( EASTERN

BOOK COMPANY LUCKNOW 2001).

14. V.N SHUKLA, CONSTITUTION OF INDIA (EASTERN BOOK COMPANY NEW DELHI

2008).

LIST OF ONLINE SOURCES

www.manupatra.com

www.kanoon.com

www.scconline.com

LIST OF STATUTES REFERRED

The Code of Civil Procedure, 1908

The Indian Contract Act, 1872

The Arbitration and Conciliation Act, 1996

The Constitution of India


http://www.kanoon.com/

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STATEMENT OF JURISDICTION

With reference to the circumstances that have been presented in the instant case,

Appellant has approached this Hon’ble Court under Article 136 of the Constitution of

India.


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STATEMENT OF FACTS

1. A contract was entered into by M/s. Mohanwires Ltd. with M/s. Bright Energy Ltd for the

construction of a captive power plant. M/s. Bright Energy Ltd. in their part awarded a part

of the contract to M/s. Shanti Vigyan Ltd. and issued four work/purchase orders in this

connection

2. M/s. Shanti Vigyan issued four unconditional irrevocable bank guarantees from the State

Bank of Baroda dated 20.08.1998. The bank guarantees were of such nature that the bank

was under the liability to pay M/s. Bright Energy Ltd without protest or demur or proof of

satisfaction and without reference to M/s. Shanti Vigyan Ltd.

3. M/s. Bright Energy and M/s. Shanti Vigyan enetered into a wrap around agreement in

which it was stated under a that in case of any material breach of the contract, Bright

Energy shall have the right to encash the bank guarantee of all the contracts. At the time

of entering into the contract it was agreed by both the parties and an arbitration clause was

added whereby they agreed that all the disputes arising out of the contract and its

performance shall be refered to an arbitrator, the decision of whom shall be binding upon

both the parties.

4. On 23.04.2000 Bright Energy invoked the four bank guarantees as a result of which Shanti

Vigyan invoked the Arbitration clause on 26.04.2000. The following day, i.e on 27.04.2000,

Shanti Vigyan moved a petition under Section 9 of the Arbitration and Conciliation Act

claiming that Bright Energy are not entitled to the encashment of the Bank Guarantee before

the district court of Nagpur. On 12.06.2001 the learned District Judge dismissed the petition

of Shanti Vigyan.

5. An appeal was made under Section 17 of the Arbitration Act, however Shanti Vigyan

preferred an appeal before the High Court. On 10.10.2001, even while the arbitration

proceedings were pending the Hon’ble High Court made an interim order and on

24.10.2001 allowed the appeal and set aside the judgment of the District Court.

6. In 2002, the appellant, Bright Energy filed a petition against the order of the Hon’ble High

Court.


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ISSUES RAISED

1. WHETHER THE APPEAL IN MAINTAINABLE UNDER ARTICLE 136 OF

CONSTITUTION OF INDIA ?

1.1. Intervention of Hon’ble Supreme Court in Interim orders.

1.2. The case does not come under the exceptions of appeals to be filed under

Article 136 of Constitution of India.

2. WHETHER THE INTERIM INJUNCTION BY HIGH COURT OVER THE ENCASHMENT

OF BANK GUARANTEE HAS SUBSTANTIAL VALIDITY ?

2.2. The essentials of invoking bank guarantee are fulfilled.

2.2.1. Bank is obliged to make payment of all guarantees on demand, without

proof or condition.

2.2.2. A bank guarantee is an independent and distinct contract between

thebeneficiary and the bank and the rights and obligations therein are to

be determined on its own terms.

2.3. The case does not cover the essentials of interim injunction on invocation of Bank Guarantee.

2.3.1. Where the bank knows that the documents presented by the beneficiary for

seeking enforcement are forged or fraudulent

2.3.2. Where the case of prima facie fraud is established.

2.3.3. Where invocation of bank guarantee would lead to irreparable injury.

2.3.4. Where the guarantee is conditional and the condition has not been complied

with or period stipulation for invocation for guarantee has expired.

3. WHETHER THE CASE HIGHLIGHTS THE APPARENT LACUNA IN ARBITRATION AND

CONCILIATION ACT, 1996


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SUMMARY OF ARGUMENTS

1. WHETHER THE APPEAL IN MAINTAINABLE UNDER ARTICLE 136 OF

CONSTITUTION OF INDIA ?

It is humbly submitted before the Hon,ble Court that appeal is maintainable under Article 136

of Constitution of India. The Supreme Court can intervene in matters concerning Interim

orders. The rights of appellant have been infringed. The case involves grave and substantial

injustice done to the appellant. The case does not fall within any of the exception of cases

where Special Leave Petition under Article 136 is not allowed. Hence the appellant appealed

before Hon,ble Supreme Court.

2. WHETHER THE INTERIM INJUNCTION BY HIGH COURT OVER THE ENCASHMENT

OF BANK GUARANTEE HAS SUBSTANTIAL VALIDITY ?

It is humbly submitted before the Hon’ble Court that interim Injunction against encashment

of Bank Guarantee is not justified. Firstly the bank guarantee is present case the bank

guarantee furnished is an unconditional and irrevocable one, the person in whose favour

guarantee is furnished by the bank cannot be prevented by way of injunction in enforcing the

guarantee. Bank. Secondly it is humbly submitted before the Hon’ble court that it is well

settled that a bank guarantee is an autonomous contract and imposes an absolute obligation

on the bank to fulfil the terms and the payment in the Bank guarantee becomes due on the

happaning of the contingency on the occurance of which the guarantee becomes enforceable.

Thirdly the present case is not a prima facie case of fraud as per the facts and also there is no

scope of "irretrievable injustice" being done, for justice can always be rendered to the

respondents, if they are to succeed in the tribunal where case is already pending. Moreover

the facts remain silent vis a vis the performace of the conractual responsibilities on the part of

the respondents, upon which the situation of encashment of bank guarantees have been

arrived at, thereby eradicating all chances of "special equity" being done in favour of the

appellants upon the encashment of the bank guarantees.


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It is humbly submitted before the Hon’ble Court that the present case highlights the apparent

lacuna in arbitration and conciliation act, 1996. Since parties have equal right to appeal in

either section 9 to court or section 17 to tribunal the scope of section 17 appears to be less.

The abolition of the dual mechanism of interim relief also needs to be given a serious

thought, if reduction of Court Intervention, which is one of the primary objectives of the

Arbitration and Conciliation Act, 1996 is to be attained .


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ARGUMENTS ADVANCED

1. WHETHER THE APPEAL IS MAINTAINABLE UNDER ARTICLE 136 OF THE

CONSTITUTION OF INDIA?

It is humbly submitted to the Hon’ble Court that an appeal is being made under Article 1361

of the Constitution of India. The appeal under Article 136 must satisfy certain conditions.

Firstly the determination or order sought to be appealed from must have character of judicial

adjudication.2 Secondly, the authority whose act is complained must be a court or a tribunal.

Unless both the conditions are satisfied, Article 136, clause 1 cannot be invoked.3 The

Supreme Court will grant special leave to appeal in exceptional - cases where grave and

substantial injustice has been done by disregard to the forms of legal process or violation of

the principles of natural justice or otherwise.4 In the present case the right of the appellant has

been infringed of invoking a unconditional bank guarantee5 hence appellant has approached

to the Hon’ble Supreme Court for justice.

1.1. Intervention of Hon’ble Supreme Court in Interim orders.

It is humbly submitted to the Hon’ble court that it is necessary for the Supreme Court to deal

with legal issues at interim stage itself, leaving the parties to work out their ultimate rights

respectively finally in the pending suite.6 In Tarapore and Co. v. V.O. Export,7 the interim

order of the trial judge was not held justified on account of the important legal principles of

international trade being involved in that case. In United Commercial Bank v. Bank of India8

it was found that there is no justification for the High Court to grant a temporary injunction

restraining a bank from claiming refund of its due amount from another bank, and Supreme

Court intervention was called for. If the interim order of High Court was on facts being

perverse in nature, interference was called for.9 In several other cases also the Hon’ble

1 Article 136: Notwithstanding anything in this Chapter, the Supreme Court may, in its discretion, grant special leave to appeal from any judgement, decree, determination, sentence or order in any cause or matter passed or made by any court or tribunal in the territory of India. 2 Jaswant Sugar Mills Ltd. v. Lakshmi Chand, AIR SC 677, (1963)3 Engineering Mazdoor Sabha v.Hind Cycles Ltd., AIR SC 874, (1963) 4 Satwan Singh v. State Of Rajasthan, AIR SC 715, (1961)5 Refer to facts of the cases point no. 46 Videocon Properties Ltd. v. Dr. Bhalchandra Laboratories, 3 SCC 711, (2004) 7 1 SCC 223, (1969) :AIR SC 1168, (1970) ; Union of India v. Swadeshi Cotton Mills Co. Ltd., 4 SCC 295, (1978)8 2 SCC 766, (1981): AIR SC 1426, (1981)9 Board of Secondary Education, Manipur v. C.W. Leiyachan, 10 SCC 42, ( 2001)


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Supreme Court had to interfere with the interim orders in the interest of justice.10 In the

present case appellant has filed a case against the decision of High Court granting a Interim

Injunction over encashment of bank guarantee. Since the decision violates the terms and

condition of invoking bank guarantee hence intervention of the Hon’ble Supreme Court is

necessary.

1.2. The case does not come under the exceptions of appeals to be filed under

Article 136 of Constitution of India

The in the following cases Special Leave Petition is not maintainable:

1. Against a deceased person.11

2. Meager amount involved in the matter.12

3. Where the intervention application of the applicants filed in a writ petition before the High

Court was dismissed and an SLP was also dismissed, an intervention application by such

applicants in another SLP involving similar questions.13

4. The SLP withdrawn without obtaining from the court liberty to file the same again, fresh

SLP against the same impugned order.14

5. Against the High Court’s rejecting review petition.15

The present case does not come under any of these exceptions hence intervention of Hon’ble

Supreme Court in necessary to get justice.

2. WHETHER THE INTERIM INJUNCTION BY HIGH COURT OVER THE ENCASHMENT OF

BANK GUARANTEE HAS SUBSTANTIAL VALIDITY ?

2.1. The essentials of invoking bank guarantee are fulfilled.

It is most humbly submitted to the Hon’ble court that a contract of guarantee is a contract to

perform the promise, or discharge the liability, of a third person in case of his default 16. A

10 Joginder Nath Gupta v. Satish Chander Gupta, 2 SCC 325, (1983) ; Ambala Bus Syndicate (P) Ltd. v. Bala Financiers Ltd., 2 SCC 322, (1983) ; Union of India v. Era Educational Trust 5 SCC 57, (2000)11 Union of India v. M.C. Desai, (1996) 11 SCC 400 (para I).12 Collector of Customs v. Madras Rubber Factory, 5 SCC 439, (1995)13 Trinath Harichandan v. Chairman, Paradeep Port Trust, 3 SCC 113, 7(1998)14 Upadhyay & Co. v. State of U.P.,1 SCC 81,11, (1999)15 Shankar Motiram Nale v. Shiolasing Gannusing Rajput, 2 SCC 753, (1994)16 Indian Contract Act §126 – A “contract of guarantee” is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the “surety” ; the


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contract of guarantee is predicated upon the existence of a valid principal debtor.17 If there is

no such principal obligation, generally the guarantee fails. Consequently, a valid guarantee

depends upon the existence of a promise made to a person to whom a debtor is already

answerable or is to become answerable.18 A bank guarantee is a sort of an absolute

undertaking to pay the amount whenever demanded by guarantee holder.19 Further Bank

Guarantee is a well known business transaction in the world of commerce and it has become

the backbone of banking system.20 The essentials of invoking bank guarantee were laid down

in Hindustan steelworks corpn Ltd v. Tarapore and Co.21

2.1.1. Bank is obliged to make payment of all guarantees on demand, without proof or

condition.

It is most humbly submitted to the Hon’ble court that in the present case the bank guarantees

are unconditional irrevocable bank guarantees in which the bank agreed to pay to Bright

Energy the amount demanded or claimed by them. If the bank guarantee furnished is an

unconditional and irrevocable one, the person in whose favour guarantee is furnished by the

bank cannot be prevented by way of injunction in enforcing the guarantee.22 Further each

every bank guarantee is an unconditional bank guarantee.23 The fundamental principle to be

kept in mind that bank cannot rely on the term underlying contract between the parties. The

bank furnishing such a guarantee is bound to honour it irrespective of any disputes raised by

its customer, since it’s an independent contract, absolute in nature.24 Secondly the amount

guaranteed in present case is payable with or without reason in writing from Respondent

person in respect of whose default the guarantee is given is called the “principal debtor” and the person to whom the guarantee is given is called the “creditor”. A guarantee may be oral or written.17 Lakeman v. Mountstephen , 7 L.R H.L 17, 24 (1874)18 Harburg India Rubber Comb Co v. Martin, 1 K.B. 778, 784 (1902)19 State Trading Corpn of India ltd v. Golodetz Ltd, 2 Loyd’s Rep 277, (1989) large transactions involve both documentary credit ( bank Guarantee and Letters of Credit ) and guarantees. 20 Unique Allaince Industries, Goa v. Anupama Agencies, Trichur, AIR Ker 52, 54 (1995)21 Hindustan steelworks corpn Ltd v. Tarapore and Co., 5 SCC 341, (1966) Firstly a bank guarantee is an independent and distinct contract between the bank and the beneficiary and is not qualified by the underlying transaction and the primary contract between the person at whose instance the bank guarantee is given and the beneficiary,Secondly in case of an unconditional bank guarantee the nature of the obligation is absolute and not dependent upon any dispute or proceeding between the party at whose instance the bank guarantee is given and the beneficiary,Thirdly the commitment by the banks must be honoured free from interference by the court and it is only in exceptional cases, that is to say, in case of fraud, or in a case where irretrievable injustice would be done if bank guarantee is allowed to be encashed, the court would interfere.22 Mahatma Gandhi Sahakra Sakkare Karkhane v. National Heavy Engg. Coop Ltd. And Anr., 3 Arb. LR SC 78 (2007) ; State of Maharashtra v. National Const. Co., AIR SC 2367, (1996)23 NHAI v. ELSAMEX-TWS-SNC Joint Venture, 1 Arb. LR (Delhi) 559, (2008) 24 Himadri Chemicals Industries Ltd v. Coal Tar Refining Corporation, 3 Arb. LR (SC) 139, (2007)


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without protest or demour or proof of satisfaction and without reference to the Respondent,

upon being called by the appellant, irrespective of any dispute between the parties with regard

or any contractual terms between them.25 The authorities have completely ruled that

beneficiary is entitled to realize a bank guarantee in its irrespective of any pending disputes

upon the construction or performance of contract.26 It is not concerned in the least with the

relations between the supplier and the customer27; nor with the question whether the supplier

has performed his contracted obligation or not; nor with the question whether the supplier is

in default or not.28 The bank must pay irrespective of any dispute raised by the person at

whose instance has been given29 therefore with reference to above cases the bank is obliged to

make payment of all guarantees on demand, without proof or condition.

2.1.2. A bank guarantee is an independent and distinct contract between the beneficiary

and the bank and the rights and obligations therein are to be determined on its own

terms.

It is humbly submitted to the Hon’ble court that it is well settled that a bank guarantee is an

autonomous contract and imposes an absolute obligation on the bank to fulfil the terms and

the payment in the bank guarantee becomes due on the happening of the contingency on the

occurrence of which the guarantee becomes enforceable.30 In the present case appellant and

respondent entered into a “wrap around” agreement under which the respondent would

perform its duty on a turnkey basis. The contract for the sake of convenience, was split up

into four sub-contracts (viz the four work purchase orders), was a composite contract

executable on turnkey basis. In case of any material breach appellant shall have right to

embark upon the retentions and encashment of all bank guarantees31. In case of with similar

factual situations BSES Ltd v. Fenner India Ltd32 court held that under the “wrap-around

agreement”, the appellant had right to encash all or any of the bank guarantees for the breach

25 Refer to facts the cases point no 326 Chola Turbo Machinary International Pvt. Ltd. v. Development credit Bank and Another, 1 Arb. LR (Delhi) 540, (2008 ) 27 U.P. Co-operative Federation Ltd v. Singh Consultants and Engineers (P) Ltd., 2 Arb. LR SC 279, (1987) 28 Edward Owen Engg Ltd v. Barclayes Bank Ltd, 3 WLR 764, (1973); National Thermal Power corporation Ltd v. Hind Galvanizing and Engg Co Ltd, AIR Cal 421, (1990); Kisan Sahakari Chini Mills Ltd v. Richardson and Cruddas, AIR Bom 35, (1997)29 Dwarikesh Sugar Inds Ltd v Prem Heavy Engg Works, AIR SC 2477, (1997)30 Syndicate Bank v. Vijay Kumar, AIR SC 1066, (1992)31 Refer to facts of the cases point no. 332 (2006) 1 Arb. LR 388 (SC)


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of first respondent’s obligation under anyone of the contracts.33 Further, it is no function of

the bank, nor the court to enquire as to whether due performance had actually happened.34

The beneficiary could invoke the bank guarantees without giving the details of the loss

caused.35 Further an irrevocable performance bank guarantee being a distinct separate

transaction, the payment under it being invoked, it cannot be stayed or stopped, pending any

settlement of disputes between the beneficiary and the person at whose instance the guarantee

has been given.36 A bank guarantee is a commercial document and is neither a statutory notice

nor a pleading in a legal proceeding, and it may be invoked in a commercial manner.37A Bank

Guarantee is an independent contract whereby the bank undertakes to unconditionally and

unequivocally abide by its terms.38 Further if bank undertakes a guarantee to make

unconditional payments on demand without reference the respondent. Then the guarantee also

provides that appellant would be the sole judge for deciding whether the respondent had

fulfilled the terms of contract or not.39If documentary credits are irrevocable and independent,

the bank must pay when demand is made.40

2.2. The case does not cover the essentials of interim injunction on invocation of Bank

Guarantee.

It is humbly submitted to the Hon’ble Court that the injunction order of the High Court to the

appellant against the encashment of the Bank Guarantee is unjustified. As far as interim

injunctions are concerned they lay stress of the prima facie case, balance of convenience and

irreparable injury.41 Usually courts should refrain from granting temporary injunction to

restrain the performance of the contractual obligations arising out of a letter of credit or a

bank guarantee.42 Commitments of the bank must be allowed to be honoured free from

interference by courts; otherwise trust in international commerce would be irreparably

33 id34 id35 Hindustan copper Ltd v Rana Builders Ltd, AIR Cal 229, (1999)36 Damodar Paints Pvt Ltd v Indian oil Corporation Ltd, AIR (Delhi) 57, (1982) ; Centax India Ltd v Vinmar impex Inc, AIR SC 1924, (1986) 37 DTH Constn Pvt Ltd v Steel Authority of India Ltd., AIR Cal 31, (1986 ) ( no statement in demand notice that the beneficiary had suffered a loss and /or damages on account of default by the person on whose behalf bank guarantee was given).38 Essar Oil Ltd v Oil India Ltd and Another, 1 Arb LR (Del) 2000, (1998) 39 U.P Cooperative federation Ltd. v Singh Consultants and Engineers (P) Ltd., 1 SCC 174, (1988)40 General Electric Technical Services Company Inc. v Punj Sons (P) Ltd and another, 2 Arb. LR SC 173, (1991) 41 Baraji Trading Co v. Veeraswami,1 AN. WR 28, (1980)42 ACC Babcock v Straw Productiond Ltd., AIR Del 237, (1985)


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damaged.43 In other words there is no absolute fetter on Court to grant Injunction.44 A party

applying temporary injunction has to establish a prima facie case to get a temporary

injunction but to establish such a case it is not necessary to establish his title. 45 Prima facie

case really means that there is a serious question to be tried and that the claim of the plaintiff

is not frivolous or vexatious.46 Even establishment of prima facie case may not be sufficient

to grant a temporary injunction. Even irreparable injury and balance of convenience must be

taken into consideration.47 The word injury in Order XXXIX, Rule 2 means an invasion or

infraction of legal right giving rise to a right of action to the party claiming a right.48

Irreparable injury is one that cannot be compensated by money. While considering to grant

temporary injunction it is necessary to see whether interference is necessary to protect the

party applying for it.49

Further to refuse the payment of a bank guarantee, fulfilment of the following conditions is

essential:

2.2.1. Where the bank knows that the documents presented by the beneficiary for seeking

enforcement are forged or fraudulent

Where the bank knows that the documents presented by the beneficiary for seeking

enforcement are forged or fraudulent.50 In the present case it is not mentioned in the facts of

the cases that forged or fraudulent documents were submitted hence this condition should be

ruled out.

2.2.2 Where the case of prima facie fraud is established.

It is most humbly submitted to the Hon’ble court that the respondent cannot claim the

injunction on the bank guarantees on the grounds of fraud. The nature of the fraud that the

courts talk about is fraud of an “egregious nature as to vitiate the entire underlying

transaction.” It is the fraud of the beneficiary and the fraud of somebody else.51 A fraud is that

in which the beneficiary would be claiming payment to which he knew he had no

43 Centax (India) Ltd v. Vinmar Impex Inc., AIR SC 1924, (1986)44 Vinay Engineering v. Neyveli Lignite Corporation Ltd., AIR Mad 213, 219 (1985) 45 Ram Chandra Panda v. Lok Nath Panda, 1 CWR 138, (1978)46 Shankarlal Devi Prasad v. State of M.P, MPLJ 419, (1978)47 Kalyanpur Limeworks v. State of Bihar, AIR Pat 226, (1951)48 Pandnav v. Dhableshwar, 40 CLT 1337, (1974)49 Pishora Singh v. Smt Lajobai, Rev LR 644, (1974)50 United City Merchants (Investments) Ltd v. Royal Bank of Canada, 2 ALL ER 720, 728 (1982) ; Federal Bank Ltd v. VM Jon Engg Ltd, AIR SC 3166, ( 2000) 51 Uttar Pradesh Co-op Federation Ltd v. Singh Consultants and Engrs Pvt Ltd, 1 SCC 174, (1988)


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entitlement.52 In the present case the contract of bank guarantee was entered upon by the

petitioner knowing fully that he will be entitled to payment determined by the terms and

conditions of the bank guarantee itself. Mere suspicion or possibility of fraud is not enough.53

Where a fraud by one of the parties to the underlying contract has been established and the

bank has notice of the fraud.54Another view is that a demand under the guarantee may

become fraudulent not because of a fraud committed by the beneficiary while executing the

underlying transaction, but it may become so because of subsequent events and

circumstances.55 In the present case the facts remain silent about the existence of any such

misdeeds on the part of the petitioner and a mere assumption of the happenings of any such

event would be beyond the scope of prudence.56

2.2.3. Where invocation of bank guarantee would lead to irreparable injury.

It is most humbly submitted to the Hon’ble Court that the encashment of the bank guarantees

by the appellant won’t lead to any special equity towards them or would result in an

irretrievable injury being done towards the Respondents. The harm or injustice contemplated

for refusing enforcement of a bank guarantee must be of such an exceptional and irretrievable

nature as would override the terms of the guarantee and the adverse effect of such an

injunction on commercial dealings in the country.57 Assuming the happenings of events of

such extraordinary nature would be incongruous as the facts of the case remain silent on the

issue. There is no scope of "irretrievable injustice" being done, for justice can always be

rendered to the respondents, if they are to succeed in the tribunal where case is already

pending. Moreover the facts remain silent vis a vis the performance of the contractual

responsibilities on the part of the respondents, upon which the situation of encashment of

bank guarantees have been arrived at, thereby eradicating all chances of "special equity"

being done in favour of the appellants upon the encashment of the bank guarantees.

2.2.4. Where the guarantee is conditional and the condition has not been complied with

or period stipulation for invocation for guarantee has expired.

52 Deytsche Ruckversicherung AG v. Walbrook Insurance Co Ltd., 4 All ER 181, (1994)53 Edward Owen Engg Ltd v. Barclays Bank Intl Ltd., 1 ALL ER 976, 986 (1978)54 55 Hindustan Steel Works Const Ltd v. Tarapore & Co., AIR SC 2268, (1996)56 Refer to the facts of the cases57 U.P. State Sugar Corporation v. M/s. Sumac International Ltd., AIR SC 1644, (1997)


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It is humbly submitted to Hon’ble Court that where the guarantee is conditional and the

condition has not been complied with then an interim injunction could be granted. 58 Secondly

where the conditions necessary for invoking a conditional bank guarantee have not arisen.59

Thirdly where the purpose for which a conditional guarantee was given has been

accomplished injunction could be granted.60 Further where the period stipulated for

invocation for guarantee has expired.61 The present case does not satisfy any of the above

conditions so interim injunction cannot be put on the invocation of bank guarantee.



It is humbly submitted to Hon’ble Court that the scope of § 9 is wider than that of § 17. § 9

and 17 both deal with the interim measures of protection. The court and arbitral tribunal

appear to have concurrent jurisdiction which, though not identical, is somewhere overlapping.

The salient points of difference between these two are many. First of all the party autonomy

is different. One such situation is to grant interim measures of protection as contemplated by

§ 9. This is similar to the power available to the court under the Arbitration Act of 1940. But

what is clearly revolutionary is § 17 of the Act, which also uses the phrase ‘Interim measures

of protection’ and thus gives co-terminus power to the Arbitral Tribunal as well. The phrase’

unless otherwise agreed by the parties’ ushers in party autonomy and indicates that this

provision is of non-mandatory nature. The non-mandatory provisions are primarily of

importance where a set of arbitral rules is agreed on as are used in institutional arbitration.62

In some jurisdictions, the relevant law specifically provides that in the first instance, an

application should be made to the tribunal and then only to the court. For instance, § 38(3) to

(6) of English Arbitration Act 1996, in the absence of an agreement by the parties to the

contrary, the delineate the default parameters of tribunal jurisdiction to make interim orders

of protection. § 44(3) vests the court with powers in support of arbitral proceedings and

prescribes the procedure for exercise of power. But there is no similar provision in model law

58 Banwari Lal Radhe Mohan v. Punjab State Co-op Supply and Marketing Federation Ltd., AIR (Delhi) 357 (1982) 59 Basic Tele Services Ltd v. Union of India, AIR (Delhi) 1, (2000) (bank guarantee given to cover withdrawal of bid by a bidder during the validity of bid could not be invoked where the bidder never withdrew the bid) ; Kirloskar Pneumonic Co Ltd v. National Thermal Power Corp. Ltd., AIR Bom. 308, (1987)60 Larsen & Toubro Ltd v Maharashtra State Electricity Board, 6 SCC 68, (1995)61 Mukharia Bros v State of Nagaland, 10 SCC 503, (2000)62 In this connection such institutional rules on this question are the LVIA Rules particularly Rule-25’Interim and Conservatory Measure’ is remarkably explicit


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or is § 9 of this Act. This section is not identical to Article 9 of the Modal Law, though

codifies its spirit, It appears rather to have been influenced by the language of § 41(b) and

Second Schedule of the Act of 1940, albeit both the provisions, as observed by the Supreme

Court in Sundaram Finance Ltd v NEPC India LTD 63 are very different from the provisions

of § 9 and 17 of this Act. The parties therefore, have the choice whether to approach the

arbitral tribunal under § 17 or court under § 9, for seeking an interim measure of protection.

As the modern trend of arbitration law is to marginalize court intervention, the balance

normally should tilt in favour of the tribunal because it will be more expeditious and less

expensive. Legendary legal personality Nani Palkiwala mentioned that arbitration has to be

made compulsory in commercial matters. It has benefits like speedy justice, its economical,

finality as arbitrators award is unchallengeable except on narrow grounds and finally justice

as the final outcome of arbitration is as likely -to be marked by justice as is a case in a court

of law. The law should provide for compulsory adjudication or arbitration to settle all

industrial disputes64. The court has the coercive power to enforce its orders. But the arbitral

tribunal is not competent to exercise any such power. The lack of power to enforce an interim

measure for protection, leaves the tribunal with no effective way of forcing the party to obey

the order, that is to say, it has no teeth.

63 2 SCC 479, 487 (1999)64 M.V Kamath, Convocation Address , Xavier labour relations instituts at Jamshedpur, 29 feb 1980, Obedience to Unenforceable,nani Palkiwala A life.


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§ 38 of the English Arbitration Act 1996, 65 unless otherwise agreed by the parties, confer the

powers to order interim measure of protection on the arbitral tribunal. This power particularly

includes express power to order a party to furnish security for the costs of arbitration, a power

previously preserve of the court only. The 1996 act does not otherwise specify the basis on

which security for costs should or should not be granted and the tribunal therefore has a broad

discretion. It seems likely though that in practice the tribunal will have regard to similar

consideration as those applied by court in dealing with applications under RSC O 23.66

The abolition of the dual mechanism of interim relief also needs to be given a serious

thought, if reduction of Court Intervention, which is one of the primary objectives of the

Arbitration and Conciliation Act, 1996 is to be attained. In the present case, justice could

have been delivered to Bright Energy with minimised hazards had such overlapping arbitral

framework not been present within the Arbitration and Conciliation Act, 1996 in the form of

Sections 9 & 17. Despite the fact that the Arbitral Proceedings were pending before the

Arbitration Tribunal, the respondents could file a suit before the Hon’ble High Court, only by

exploiting this apparent lacuna and could successfully delay the justified encashment of the

bank guarantees.

65 The English Arbitration Act, 1996: section 38 General Powers exercisable by the Tribunal.(1) The parties are free to agree on the powers exercisable by the Tribunal for the purposes of and in

relation to the proceedings.(2) Unless otherwise agreed by the parties the tribunal has the following powers.

This power shall not be exercised on the ground that the claimant is-(a) An individual ordinarily resident outside the United Kingdom, or(b) A corporate of association incorporated or formed under the law of the country outside the United

Kingdom, or whose central management and control is exercised outside the United Kingdom(c) The tribunal may order a claimant to provide security for the costs of the arbitration.

This power shall not be exercised on the ground that the claimant is-(i) An individual ordinarily resident outside the United Kingdom, or (ii) A corporation or association incorporated or formed under the law of a country outside the United Kingdom, or whose central management and control is exercised outside the United Kingdom.

(d) The tribunal may give directions in relation to any property which is the subject of the proceedings or as to which any question arises in the proceedings, and which is owned by or is in the possession of a party to the proceedings-(i) For the inspection, photographing, preservation, custody or detention of the property by the

tribunal, an expert or a party, or (ii) Ordering the examples be taken from, pr any observation be made of or experiment conducted

upon the property.(e) The tribunal may direct that a party or witness shall be examined on oath or affirmation, amd may

for that purpose administer any necessary oath or taken any necessary affirmation.(f) The tribunal may give directions to a party for the preservation for the purposes of any evidence in

his custody or control.

66 Russell on Arbitration, twenty-first edition, 1997, p 206 para 5-098


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PRAYER

Wherefore in the light of the abovementioned Authorities Cited, Issues Raised and

Arguments advanced, it is humbly requested before this Hon’ble Court to adjudge the matter

and declare that:

The Injunction order passed by the Hon’ble High Court be set aside.

The Appellant be allowed to encash the Bank Guarantees.

And to pass any such order as deemed fit in the light of justice, equity and good

concise. The counsel shall forever beseech this Hon’ble Court for its humble

consideration.

Counsel For Appellant


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