BHEL v. Egyptian Electricity Transmission Company & Ors.
Bharat Heavy Electricals Limited (BHEL) v. Egyptian Electricity Transmission Company & Ors.
CS(COMM.) 675/2017 (Delhi High Court) Date of Final Judgment: 1 June 2020 Bench: Jayanth Nath J.
BACKGROUND:
The plaintiff, a public sector undertaking (“BHEL”) filed the present suit seeking a decree of declaration that the bank guarantees issued in favor of defendant no. 1, Egyptian Electricity Transmission Company (“Company”) stand discharged and an injunction restraining the invocation of bank guarantees. A decree of permanent injunction was also sought to restrain the Company, etc. from invoking/encashing or receiving any moneys there under or getting an extension of the bank guarantees. Other connected reliefs were also sought.
The Court on 03.10.2017 restrained the Company and other defendants and directed them to maintain status quo regarding the bank guarantees in an order passed in BHEL’s application under Order 39 Rules 1 and 2 of the Code of Civil Procedure. 1908 (“CPC”). Despite this interim order, defendant No. 3 (“HSBC, Egypt”) on 20.12.2017 released the amounts to the Company claiming that they were advised that despite interim order of this court, the Bank was obliged to release the money. On the other hand, Defendant No. 2 (“HSBC”) had filed IA No. 14196/2017 under Order 7 Rule 11 CPC seeking rejection of the plaint on the grounds that will be specified in the subsequent sections.
FACTUAL MATRIX:
The present suit relates to a contract for supply and installation of power transformers between BHEL and the Company. In 2004, the Company invited two tenders for purchase of 23 and 125 MVA, 220/66/11 KV Power Transformers and the Company nominated BHEL for execution of the contract and the parties entered a contract on 12.09.2006. As per terms and conditions of the contract, BHEL was required to submit an advance payment guarantee in the form of a bank guarantee. BHEL was also required to submit a performance guarantee for 10% of the total contract price which was to remain valid till the end of warranty period.
The supply of transformers pertaining to both the contracts were completed by May 2008. Subsequently, the transformers were commissioned successfully under the supervision of the engineers of BHEL. After commissioning the transformers, the same were working to the satisfaction of the Company as is evident from various certificates issued by it. The Company is also said to have issued completion certificate in respect of the supervision of commissioning and erection of various transformers
All work pertaining to the contract was completed by BHEL way back in 2008 and only very minor work which does not affect the operation of the transformers or performance of the sub-stations remained. This related to supervision of erection of firefighting system. The firefighting equipments had been supplied in full as per the contract, however the Company did not provide shut down schedule for installation of firefighting system till 2012. Further, the firefighting equipment of 90% sites were completed. The balance could not be completed due to cancellation of shut down. The total value of all such firefighting systems including equipment does not exceed even 0.25% of the total contract value.
As the entire work was completed, BHEL requested issuance of a taking over certificate and close the contract. However, the Company wrongly withheld the issuance of the taking over certificate and sought to invoke bank guarantees of the value of Rs. 28 crores. On 28.09.2017, the Company invoked the advance guarantees and performance bank guarantees.
CONTENTIONS:
Plaintiff
BHEL asserted that the invocation was completely contrary to the terms of the said bank guarantees and has caused irreparable harm and injury. It was inter alia asserted:
The performance bank guarantees stand discharged as per Clause 12 of the contract agreement, which states that the performance guarantee was to remain valid till the end of the warranty The warranty period for each transformer was 48 months of cumulative and successful operation after the date of issuance of the taking over certificate or 54 months from the date of delivery for each transformer. The transformers were supplied way back in May 2008 and the warranty period expired after 54 months from May 2008.
Performance guarantees also provide that the same shall get discharged on issuance of the final certificate. Given the fact that all the works under the contract have been completed, all the performance bank guarantees get discharged as the final certificate issued/is deemed to be issued upon the stations being put in commercial
The bank guarantees issued for advance payment receipt have also been fraudulently sought to be encashed as the Company has already adjusted the said advance from various invoices raised by It was further contended by the plaintiff that the invocation of the bank guarantees is not in terms of the bank guarantees.
The Company in its own pleadings has admitted the existence of force majeure event (war) prevailing in Hence, the encashment of bank guarantees has to be stayed as “special equities” exist in favor of BHEL.
Neither the bank guarantees, nor the contract provide jurisdiction of any specific court to deal with disputes. Since a part of the cause of action has arisen within the jurisdiction of this court, the Delhi High Court has territorial jurisdiction to try and entertain the suit.
Defendant
HSBC, Egypt pleaded that it was BHEL who requested defendant no. 2 (HSBC Bank) for issuance of bank guarantees in favor of the Company. HSBC Bank in turn requested HSBC, Egypt to issue bank guarantees based on the counter guarantees issued by it. The Company invoked the bank guarantees on 19.09.2017 and HSBC, Egypt invoked the counter- guarantees furnished by HSBC Bank on 28.09.2017. Subsequently, HSBC, Egypt released funds to the Company on 20.12.2017.
It was further pleaded that HSBC, Egypt is a banking company incorporated and working exclusively in Egypt and is bound to follow the law of Egypt. It was asserted that HSBC, Egypt sought an opinion from its lawyer in Egypt and was advised that it was bound to release the guaranteed amount to the Company despite the interim orders passed by this court. It was also pleaded that the Court doesn’t have the jurisdiction to entertain the present suit.
HSBC Bank primarily raised objections about the maintainability of the suit. It was pleaded that parties are bound to submit to the jurisdiction of Egyptian Courts as the counter- guarantees issued by it are governed by laws of Egypt. A reliance was also placed on the doctrine of Forum Non Conveniens to argue that since the law applicable is the Egyptian law, it is the Egyptian court which would be more appropriate to apply the governing law.
Further, it was pleaded that mere issuance of counter guarantees by HSBC Bank in Delhi doesn’t amount to giving rising to a cause of action here and therefore, the suit is liable to be dismissed.
JUDGMENT:
The Court proceeded to determine the following: 1) whether the Court has jurisdiction to entertain the suit? and 2) whether circumstances exist to pass an interim order restraining the defendant from invoking the bank guarantee?
On the issue of jurisdiction, the Court primarily observed that there is no clause in the agreement conferring exclusive jurisdiction to hear the dispute by the courts of Egypt. Thereafter, referring to the case of Modi Entertainment Networks and Ors. vs. W.S.G. Cricket PTE Ltd., the Court stated that in the absence of any exclusive jurisdiction clause, what had to be seen was whether any part of cause of action has arisen within the territory of this court to permit this court to adjudicate the present suit.
In furtherance, the Court reiterated the principle laid down in A.B.C. Laminart Pvt. Ltd. vs. A.P. Agencies, Salem to observe that since a part of cause of action arises at the place where money is expressly or impliedly payable under a contract, the Court would have jurisdiction to entertain the present suit as payments as per the contract were payable in Delhi. This was clearly supported by the fact that besides all payments under the contract being received in Delhi, even the bank guarantees were to be paid from Delhi.
On the issue of injunction, the Court primarily referred to the landmark cases of U.P. State Sugar Corporation vs. Sumac International Ltd. and Himadri Chemicals Industries Ltd. Vs. Coal Tar Refining Co. to reemphasize that the law relating to invocation of bank guarantees is well settled and the only cases in which an injunction can be granted on the invocation of such guarantees are: firstly, when there is a clear fraud of an egregious nature of which the bank has notice and secondly, when there are special equities in favor of the party seeking injunction such as irreparable injury or that irretrievable injustice would occur if injunction was not granted.
Testing the instant case on the contours of aforementioned principles, the Court observed that the facts of the case do not prima facie tantamount to a fraud to justify grant of an interim injunction in favor of the plaintiff based on the first noted exception.
However, the facts still had to be tested on the anvil of the second noted exception i.e. the ground of special equities. On the question of special equities, the Court primarily highlighted the fact that the plaintiff had completed almost all of the work under the contract and some minor work regarding supervision of erection of fire-fighting system remains for only two sites, that also because the Company was reluctant to shut down the transformers in question. The Court further took note of the fact that a war like situation exists in Egypt (as admitted by the defendant) to observe that in such circumstances, there is a strong possibility that the plaintiff may find it difficult to recover its dues. To support its observation, the Court relied on the case of Bharat Heavy Electricals Ltd. v. Ethiopian Electrical Power Corporation and Ors., which had somewhat similar facts.
Noting that special equities indeed exist in favor of the plaintiff, the Court confirmed the interim order passed by this court on 03.10.2017 and emphatically observed:
“In my opinion, the plaintiff has based on the above noted facts made out a prima facie case. On account of the facts noted above, there is a strong possibility that the plaintiff may find it difficult to recover its dues. Plaintiff is a Government of India enterprise and would be put extreme hardship if it were unable to recover its dues. In the above circumstances, these are issues which would have to be gone into by this court at a later stage while disposing of the suit based on the evidence led by the parties.
Accordingly, special equities exist in favour of the plaintiff. Prima facie exceptional circumstances appear to exist which may make it difficult for the plaintiff to recover its dues. In my opinion, if the injunction is not continued, it would cause grave and irreparable loss and damage to the plaintiff.”