In the judgment dated September 17, Delhi High Court appreciated the manner in which the Saurav Agrawal presented the case, though pitted against the senior counsel.
The court said, “if he was not ultimately successful in steering his client’s cart up the hill, it was only because the hill was too steep, and not owing to any want of effort on his part.”
The court was appreciating Saurav Agrawal, who was pitted against the ‘senior and venerated Venugopal.’
In this case, the dispute stems from a construction contract between the Appellant and the Respondent, in which the Respondent had furnished Bank Guarantees (BGs) as security for its performance obligations. Disagreements arose during the execution of the contract, leading to arbitration proceedings. The Respondent, aiming to stop the Appellant from invoking the BGs, approached the Arbitral Tribunal. The Tribunal ruled in favor of the Respondent, restraining the Appellant from invoking the BGs. Consequently, the Appellant has filed an appeal against this decision, challenging the Tribunal’s restraint on invoking the bank guarantees.
The appellant argued that it was justified in terminating the contract due to the Respondent’s defaults. It contended that the invocation of BGs was in accordance with the law and the terms of the BGs. Further, challenging the Arbitral Tribunal’s finding that the invocation letters were not compliant with the BG terms. It argued that the Tribunal erred in omitting crucial paragraphs from the invocation letters, which referred to the termination notice detailing the Respondent’s defaults.
The Appellant also contested the Tribunal’s finding of ‘special equities,’ stating that there was no evidence to support the claim that invoking BGs would cause irretrievable financial prejudice to the Respondent emphasising that the Respondent was involved in multiple large projects and the Appellant was ensured the enforceability of any future arbitral award in the Respondent’s favor.
The Respondent argued that the delays in the project were due to unforeseen circumstances like the COVID-19 pandemic and design complexities, which were beyond its control. It highlighted that it had sought an extension of time based on an expert opinion, and the invocation of BGs during ongoing discussions was unjust while supporting the Tribunal’s findings on ‘special equities,’ stating that encashing the BGs would cause it irreversible financial harm and hinder its ability to recover even if it succeeded in arbitration.
The Respondent also contended that the Appellant’s failure to reduce the Performance Bank Guarantee (PBG) amount from 10% to 3%, as per a government memorandum, further supported the existence of ‘special equities while arguing that the invocation letters for the various BGs (PBGs, ABG, RBGs) were not strictly compliant with the terms of the respective BGs. It pointed out discrepancies in the language used in the invocation letters compared to the specific conditions mentioned in the BGs.
The Court held that the Arbitral Tribunal’s decision to stay the invocation of BGs was unsustainable clarifying that the law on injunctions against BG invocation, emphasizing that unconditional BGs can only be restrained in cases of ‘egregious fraud,’ ‘irretrievable injustice,’ or ‘special equities.’
The Court found that the invocation letters, when read with the termination notice, were compliant with the BG requirements. It rejected the Tribunal’s finding of ‘special equities,’ stating that there was no evidence to support the claim of irreversible financial prejudice to the Respondent. The Court also dismissed the Respondent’s argument based on the government memorandum regarding PBG reduction, stating that it was inapplicable in cases where arbitration was contemplated.
The Court concluded that the Respondent failed to establish a case for injunction against BG invocation and set aside the Tribunal’s order.
