Prithvi Information Solutions Ltd v. Bharat Sanchar Nigam Ltd

ORDER %

11.06.2013 The aforesaid petitions under Section 9 of the Arbitration and Conciliation Act, 1996 have been filed based on somewhat similar facts. The facts of OMP No.595/2013are that on 10^'' August, 2010 respondent invited parties to bid for tender for running professionallymanagedContact Centres Services for its customersof Wirelineservice includingBroadband and Value added services associated with wire-line. The tenders were OMP 594/2013& 595/2013 Page 1of5 invited from Indian Companies on zonal basis. The successful bidder was to set-up, operate and maintain the contact centres including agents at CCSP premises. The petitioner states that on representationextended by the respondent it filed its tender for South and West zones. Petitioner was issuedAdvanceWork Orderdated 05.12.2011separatelyfor southand west zones. In terms of the Advance work Orders the petitioner submitted the .«»> PerformanceBankGuarantee. Upon acceptanceof the same, the respondent issuedthe Work Orderdated30.12.2011separatelyfor the zones. On

21.05.2013 the respondent issued a show cause notice to the petitioner listing out various alleged illegal acts done by the petitionerand pointing out that the Contract is liable to be terminated due to non-performance. Explanation was sought within 14 days as to why the contract be not terminated and the Performance Bank Guarantee totalling Rs.5.5 crores may not be forfeited. The present petition has been filed seeking an order of injunction restraining the respondent from taking any coercive steps f in terms of the show cause notice dated

21.5.2013 and to restrain the respondent from forfeitingthe PerformanceBank Guarantee. It is the contention of the learned senior counsel appearing for the petitionerthat in terms of Clause 16.2 the performancebank guaranteewas based on 5% of the expectedtotal value of billingfor 3 years. It is stated that in terms of the said clause the value of the Performance Bank Guarantee would be reduced based on invoice value of first six months. It is contended that as the initial requirement was to submit the Performance Bank Guarantee of Rs.3.5 crores for Project No.1to Rs.2 crores, for ProjectNo.3 i.e. a total of Rs.5.5 crores, the expected turnover as per the respondent was Rs.llO crores for three years. Hence for per month the expected turn r over was Rs.3 crores but in contrast the average has worked out to only Rs.16.38 lacs per month. It is contended that hence the respondentshave misled the petitioner by giving wrong projection of expected business volumes. It is further submitted that in terms of Clause

16.2 of the Agreement the respondent was obliged to reduce the value of the Bank Guarantee in consonancewith the billing being generated in the first six months. Reliancehas beenplacedon a letterdated21.3.2013sentbyAGM, CCAP, H, HTD, Hyderabad. Learnedsenior counsel for the petitioneralso relies upon a judgment of the Division Bench of this Court in 173(2010) DLT 8 (DB) titled as Humboldt Wedag India PvtLtd. versus Dalmia Cement Ventures Ltd. whereof he relies upon paragraph 18 which holds that a demand by a beneficiary under the Bank Guarantee may become fraudulent not because of any fraud committed by the beneficiary while executing the contract but it may become so because of subsequent events or circumstances. Hence, the Court can restrain a person from making such a fraudulent demand from the Bank Guarantee. It was further contended that there has been huge defaults inpaymentby the respondentand againstan outstandingbillingof Rs.88.92 lacs, it is stated that the respondent has only paid Rs.7.25 lacs. Learned senior counsel for the respondent has relied upon the Show Cause Notice dated 21.05.2013 to contend that the petitioner is guilty of having performeda very poor job. Complaintswere being received from variouscontact centresregardingpower failureinsufficientnumbersof CSA deployment. It is also statedthat the petitionerhas suspendedoperationof five call centres out of six in the South and West zones and despite request to restart the call centres no action has been taken. Hence, it is contended by the learned senior counsel for the respondent that the action of the respondentis legal and valid. Counsel for the respondentalso submitsthat in viewofnon-functioningofcall centresand the huge amountofliquidated damages the petitioneris liable to make the payments which have been delayed by the respondent. It is settled law that while dealing with invocationof a Performance Guaranteeissuedby aBankits encashmentcannotbe preventedby the party at whose instance the guarantee was issued except in cases of fraud or irreparableinjustice. Fraud must be of "egregiousnature"so as to vitiate the entire underlyingtransaction. Irretrievableinjusticeshould be of the kind arising in an irretrievable situation where an irreparable and irretrievableharm would be caused to the party seeking injunction. The principles have been laid down and reiterated in (1988) 1 SCC174 titled as U.P. Cooperative Federation Ltd. -vs-Singh Consultants and Engineers

(P) Ltd. and

(1994) 1 SCC 502 titled as Svenska Handelsbanken -vs-Indian Charge Chrome and various other judgments. In view of the said legal position, no case is made out for passing any injunction orders regarding the performance Bank Guarantee against the respondent. The contentions of the Petitioner about non-reduction of value of the Performance Guarantee in terms of Clause 16.2 of the Agreement or delay in release of payments cannot be said to constitute a fraud that vitiates the transaction. At best it would be a breach of contract. Nothing is placed on record to show irretrievable injustice. The present petition is dismissed. It is, however, clarified that in case the respondent seeks to encash the Bank Guarantee, any such encashment will be subject to outcome of the arbitration proceedings that may be initiated by the petitioner. In view of the above order passed in OMP No. 595/2013 the OMP No,594/2013also standsdismissedaccordingly. JAYANTNATH (VACATION JUDGE) JUNE 11,2013 nt Page 5of5

* IN THE HIGH COURT OF DELHI AT NEW DELHI + OMPNo. 594/2013 & IANos.9910-9911/2013 VMC SYSTEMS LTD. .... PETITIONER Through: Mr. Harish Malhotra and Mr.Rana S.Biswas, Sr.Advs. with Mr.Vikram, Mr.Sunil Sharma and Mr.Sumir J.Hazarika, Advs. versus BHARAT SANCHAR NIGAM LIMITED RESPONDNETS Through: Mr.Dinesh Agnani, Sr.Adv. with Ms.Leena Tuteja, Adv. AND + OMPNo. 595/2013 & IANos.9911-9912/2013 M/S.PRITHVI INFORMATION SOLUTIONS LTD. .... PETITIONER Through: Mr. Harish Malhotra and Mr.Rana S.Biswas, Sr.Advs. with Mr.Vikram, Mr.Sunil Sharma and Mr.Sumir J.Hazarika, Advs. versus BHARAT SANCHAR NIGAM LIMITED RESPONDNETS Through: Mr.Dinesh Agnani, Sr.Adv. with Ms.Leena Tuteja, Adv. CORAM: HON'BLE MR. JUSTICE JAYANT NATH