Delhi High Court: A petition was filed under Section 9 of the Arbitration and Conciliation Act, 1996 seeking to restrain respondents from acting upon letter dated 01-12-2023 and 12-01-2024 for invoking and/or encashing all or any of the Retention Bank Guarantees and Performance Bank Guarantees which were valid till 31-03-2024. Jasmeet Singh, J., opined that there was no averment that petitioner was in breach of the obligations under the Agreement and hence the invocation of 01-12-2023, 12-01-2024, and 17-01-2024 was not in terms of the Guarantee as there was no written statement accompanying the invocation letter stating that petitioner was in breach of its obligations under the contract. The Court, till the next date of hearing, restrained respondent from invoking and/or encashing all or any of the Retention Bank Guarantees and Performance Bank Guarantees which were valid till 31-03-2024 pursuant to letters dated 01-12-2023, 12-01-2024, and 17-01-2024.
Background
A contract agreement was executed on 06-08-2013, wherein petitioner was required to execute the works of Design and Construction of Double Line Railway for a total lump sum Contract Price amounting to Rs 6699.50 crores. Petitioner furnished retention bank guarantee and informed the same to respondent vide letter dated 03-07-2013 and as on date, petitioner had furnished Retention Bank Guarantees and Performance Bank Guarantees which were valid till 31-03-2024. For undertaking the project, petitioner was required to import Head Hardened Rails (‘HH Rails’) from Japan. The Basic Customs Duty (‘BCD’) on import of HH Rails attracted a levy of 10%, however, in 2011, India and Japan entered into a Comprehensive Economic Partnership Agreement (‘India-Japan CEPA’) to boost the economy of the countries. Pursuant to the said agreement, the BCD on import of HH Rails was reduced to NIL in 11 equal instalments starting from 2011.
Accordingly, after factoring in the drastic reduction of the BCD on import of HH Rails from Japan on the base rate was 8.2% which was indicated by petitioner in its bills. In 2015, respondent while submitting interim payment certificate (‘IPC’) withheld Rs 71,76,366 and Rs 1,40,81,758 from IPC-15 and IPC-17 on account of change in legislation, i.e., reduction of BCD. However, the Engineer appointed by respondent subsequently determined that there was no change in legislation subsequent to the base rate with respect to levy of BCD and released the withheld amount. In 2023, after a lapse of 8 years, the Engineer suo motu raised and re-determined the amount payable by petitioner to respondent on account of change in the levy of BCD. Based on the said re-determination, the performance bank guarantees were sought to be encashed.
Analysis, Law, and Decision
The Court noted that the Engineer, who was the authority to determine the change in BCD, concluded that respondent had incorrectly withheld the amount of Rs 71,76,366 and Rs 1,40,81,758 from IPC-15 and IPC-17 and consequently released the same to petitioner. The Court further noted that as per Clause 3.5 of the Comprehensive Economic Partnership Agreement viz. Federation Internationale Des Inquenieulrs Counsel (FIDIC), 1999, (‘the Agreement’), it was the Engineer who was to determine the amount payable under the terms of the contract. In addition, each party to the Agreement, if aggrieved by the order of the Engineer, was to proceed under Clause 20 of the Agreement and more particularly Clause 20.04. The Court also noted that on 08-05-2015, the Engineer in terms of Clause 3.5 concluded that no amount was due and payable by petitioner on account of change in BCD.
The Court opined that if respondent was aggrieved by the said decision, the remedy lied with respondent to approach the Dispute Adjudication Board (DAB) in terms of Clause 20 and the same was not done by respondent. However, respondent’s Engineer on 22-08-2022, reviewed the decision and based on the said review, the Engineer found that Rs 70,75,25,996 was due from petitioner to respondent in respect of reduction in basic customs duty.
The Court opined that the Engineer, in terms of the Agreement, did not have the power to review the decision of 08-05-2015 made by the earlier Engineer who had adjudicated upon this issue regarding change in the liability of petitioner on account of reduced BCD. If respondent was aggrieved by the decision of 08-05-2015, the option available with respondent was to initiate process under clause 20 of the Agreement.
The Court took note of the letters dated 17-01-2024, 12-01-2024, and 01-12-2023, invoking the bank guarantee and opined that there was no averment that petitioner was in breach of the obligations under the Agreement and hence the invocation of 01-12-2023, 12-01-2024, and 17-01-2024 was not in terms of the Guarantee as there was no written statement accompanying the invocation letter stating that petitioner was in breach of its obligations under the contract.
The Court ordered to issue notice to respondent on petitioner taking steps within one week from the date of this order, returnable on 20-02-2024. The Court, till the next date of hearing, restrained respondent from invoking and/or encashing all or any of the Retention Bank Guarantees and Performance Bank Guarantees which were valid till 31-03-2024 pursuant to letters dated 01-12-2023, 12-01-2024, and 17-01-2024.
[Sojitz-L&T Consortium v. Dedicated Freight Corridor Corpn. of India Ltd., O.M.P.(I)(COMM.) 27 of 2024, Order dated 18-01-2024]
Advocates who appeared in this case :
For the Petitioner: Mukul Rohtagi, Rajiv Nayar, Senior Advocates; Yogendra Aldak, Pranav Mundra, Bhavya Shukla, Balraaj Singh, Agrim Arora, Yogesh Gupta, Advocates
Buy Arbitration and Conciliation Act, 1996 HERE
