Vayam Tech Vs HP

SCC Online Web Edition, Copyright © 2021
Page 1 Thursday, July 01, 2021

Printed For: A.S. Chandhiok
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2018 SCC OnLine Del 7638 : (2018) 168 DRJ 621
In the High Court of Delhi at New Delhi

(BEFORE JAYANT NATH, J.)
Vayam Technologies Limited .…. Petitioner

Mr. Sandeep Sethi, Sr. Adv. with Mr. Amish Agarwal, Mr. Satyam Thareja, Mr.
Shantanu Sagar, Mr. Anmol, Mr. Sushant Sharma and Mr. Aditya Shekhar, Advs.
v.
Hewlett-Packard Financial Services (India) Private Limited .….
Respondent
Mr. Arvind K. Nigam, Sr. Adv. with Mr. Vikas Mehta, Mr. Mikhil Sharda, Mr. Mithun
Rao and Ms. Mansi Kaku, Advs.
O.M.P.(I) (COMM.) 300/2017
Decided on March 8, 2018, [Reserved on : 01.11.2017]
The Judgment of the Court was delivered by
JAYANT NATH, J.:— This petition is filed under Section 9 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as the Act) seeking a direction
prohibiting the respondent from invoking the bank guarantees as detailed in Annexure
P-2 to the present petition. Directions are also sought to the relevant banks not to
enforce the bank guarantees as detailed in Annexure P-2 annexed with the present
petition.
2. The case of the petitioner is that on 20.07.2012 a Master Rental and Financing
Agreement (hereinafter referred to as the ‘Master Agreement’) was entered into
between the petitioner and respondent. The Agreement provided the charging
structure for the parties to enter into various lease schedules whereby rent was
payable monthly in advance for equipment taken on lease by the petitioner from the
respondent. There was an arbitration clause in the said Master Agreement. Pursuant to
the Master Agreement, between 2012-2013, 35 loan financing schedules were entered
into between the parties for taking on lease certain equipments. Pursuant to the lease,
payments were required to be made by the petitioner in agreed installments to repay
the finance provided by the respondent. As a sequitur to the said Master Agreement
and Loan Financing Schedules, the petitioner gave various bank guarantees in favour
of the respondent from different banks, namely, Axis Bank Ltd., Dena Bank, IDBI Bank
Ltd. and Canara Bank. The bank guarantees have been extended from time to time.
3. It is the case of the petitioner that it had continued to make various payments to
the respondent pursuant to the Master Agreement and the Schedules. However, due to
financial difficulties and hardship, the petitioner had not been able to repay the full
amounts. Accordingly, on 22.07.2014, the parties entered into a Deed of Rescheduling
to reschedule the financing provided by the respondent to the petitioner. Another
Deed of Rescheduling to reschedule the financing was entered into on 29.10.2015. On
28.06.2017, the respondent sent a termination notice to the petitioner whereby it
terminated the said agreements and pursuant to termination, claimed a sum of Rs.
75,31,56,758/- as outstanding dues. The bank guarantees were also sought to be
invoked.
4. When this matter came up before this court on 11.08.2017, this court restrained
the respondent from invoking/receiving payments pursuant to the bank guarantees as
mentioned in Annexure P-2 to the petition.
5. The respondent have now filed their reply. They have objected to the petition on
various grounds. It has been stated that the petitioner has failed to make out any
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ground for stalling the encashment of the unconditional and irrevocable bank
guarantee issued in favour of the respondent and listed in Annexure P-2 of the petition
amounting to Rs. 44,83,32,540/-. It is also stated that the admitted liability of the
petitioner towards the respondent is Rs. 85,87,63,675/- as can be seen from the Deed
of Rescheduling dated 29.10.2015 and e-mails dated 26.10.2015, 26.12.2016 and
29.12.2016 addressed by the petitioner to the respondent. Hence, the amount due
and payable by the petitioner is much more than the amount of the unconditional and
irrevocable bank guarantees invoked by the respondent on 09.08.2017. It has been
stated that on 18.11.2016, the respondent issued a demand notice. Thereafter, on
28.06.2017, the respondent terminated the 34 original lease and loan schedules which
were rescheduled vide Deed of Rescheduling dated 22.7.2014 and Deed of
Rescheduling dated 29.10.2015 resulting in all the dues becoming payable under the
said Master Agreement.
6. It has also been pointed out that on 26.12.2016, the petitioner had addressed an
e-mail to the respondent admitting its liability and stating that one time settlement
for Rs. 61 crores can be accepted by the respondent against the petitioner's entire
outstanding dues and that the said sum of Rs. 61 crores would be paid by the
petitioner in three installments from January to March 2017. Similarly, on 29.12.2016,
the petitioner addressed an e-mail requesting for an One Time Settlement (OTS) of Rs.
62 cores against the petitioner's entire outstanding dues. Hence, it is reiterated that
there are no grounds made out for this court to pass an interim order to restrain
invocation of the bank guarantees.
7. I have heard learned senior counsel for the parties.
8. Learned senior counsel appearing for the respondent has submitted that 35 loan
financing schedules were entered into between the parties and equipment worth Rs.
90 crores have been re-financed. Default had occurred in 2014 and hence, the
restructuring and rescheduling was done on two different occasions. First one was
carried out on 22.07.2014 and the second one was carried out on 29.10.2015. It is
reiterated that the dues are admitted by the petitioner and the petitioner is in default
not only of the original loan financing schedules but even of the two subsequent deeds
of rescheduling.
9. Learned senior counsel for the petitioner submits as follows:—
a. He states that the respondent have wrongly terminated the agreement and
preponed the payment of dues. It is stated that as per the deed of Rescheduling
of 2015, the last installment was payable in 31.01.2019.
b. It is urged that the respondent have wrongfully terminated the said agreement
and sought to recover the entire dues including the amount which were payable
in 2018 and 2019.
c. It is further stated that the letter of invocation is not in accordance with the
terms of the bank guarantees. Hence, it is urged that the letter of invocation
being illegal, the bank guarantees cannot be encashed.
d. Reliance is placed on the judgment of the Supreme Court in the Hindustan
Construction Company Ltd. v. State of Bihar, (1999) 8 SCC 436 and judgment of
this court in Puri International Pvt. Ltd. v. NBCC, 1997 (41) DRJ 592 to support
the submissions.
10. In reply, learned senior counsel for the respondent has pointed out that the
respondent has a right to terminate the Master Agreement in case of default. Reliance
is placed on clause 18 and 19 of the Master Agreement to contend that in case of
default, the respondent can terminate the Agreement.
11. It is settled law that while dealing with invocation of a Bank Guarantee issued
by a Bank its encashment cannot be prevented by the party at whose instance the
guarantee was issued except in cases of fraud or irreparable injustice. Fraud must be
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of “egregious nature” so as to vitiate the entire underlying transaction. Irretrievable
injustice should be of the kind arising in an irretrievable situation where an irreparable
and irretrievable harm would be caused to the party seeking injunction. These
principles have been laid down and reiterated by the Supreme Court in (1988) 1 SCC
174 titled as U.P. Cooperative Federation Ltd. v. Singh Consultants and Engineers (P)
Ltd. and (1994) 1 SCC 502 titled as Svenska Handelsbanken v. Indian Charge Chrome
and various other judgments.
12. Reference may also be had to the judgment of the Supreme Court in United
Commercial Bank v. Bank of India, (1981) 2 SCC 766 : AIR 1981 SC 1426 wherein the
Hon'ble Supreme Court held as follows:—
“The courts usually refrain from granting injunction to restrain the performance
of the contractual obligations arising out of letter of credit or a bank guarantee
between one bank and another. If such temporary injunctions were to be granted in
a transaction between a banker and a banker, restraining a bank from recalling the
amount due when payment is made under reserve to another bank or in terms of
the letter of guarantee or credit executed by it, the whole banking system in the
country would fail. It is only in exceptional cases that the courts will interfere with
the machinery of irrevocable obligations assumed by banks. They are the life-blood
of international commerce. The machinery and comitments of banks are on a
different level. They must be allowed to be honoured, free from interference by the
courts. Otherwise, trust in international commerce could be irreparably damaged.”
13. There is not much dispute on the facts. The parties entered into a Master
Agreement dated 20.07.2012. Thereafter separate 34 schedules were entered into.
The petitioner was in default and hence, a Deed of Rescheduling was executed on
22.07.2014. Despite the rescheduling deeds, the petitioner continued to be in default.
Hence, another Deed of Rescheduling deed 29.10.2015 was entered into.
14. The first grievance of the petitioner is that the respondent have wrongfully
terminated these agreements and are seeking the entire sum payable upfront which is
illegal.
15. There is no clarity in the petition as to how much amount is in default by the
petitioner. It is also an admitted fact that the petitioner have not at any stage offered
up to date payments as per the revised schedule. They continue to be in default. As
rightly pointed out by the learned senior counsel for the respondent that there is an
admission in para 12 of the petition that the petitioner was not in a position to repay
the full amount of the dues of the respondent. Deed of rescheduling dated 29.10.2015
also admits the outstanding dues. Vide E-mails dated 26.12.2016 and 29.12.2016, the
petitioner have also acknowledged the debt of the petitioner payable to the
respondent. Hence, the plea of the petitioner that the agreement has been wrongly
terminated is meaningless inasmuch as the petitioner is in default.
16. Even otherwise the reference may be had to Clause 19 of the Master Agreement
which reads as follows:—
“19. Remedies
If a Renter Default occurs, you will be deemed to have breached a fundamental
term of this agreement and any lease and any financing and you are deemed to
have repudiated this agreement, any lease and any financing. We shall give you a
written notice of such Renter Default and give you 15 days period within which to
cure the Renter Default failing which we may execute one or more of the following
remedies.
(a) terminate this agreement of any lease or financing;
(b) declare all amounts due under any lease or any financing to be immediately
due and payable;
(c) enter into any premises and take possession of any equipment without
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demand or notice to you (and we shall not be liable for any damage which
may be caused by any such removal or detachment of equipment);
(d) require you to deliver the equipment to a location in India specified by us, an
if you fail to deliver such Equipment to us within 5 days of our request,
declare an amount equal to the equipment value of the equipment not
delivered by you to be immediately due and payable as liquidated damages
for loss of bargain and not as a penalty;
(e) Declare the present value as of the date of the Renter Default (discounted at
the rate of 5% per annum (compounded monthly)) of all Rent payments for
any leases of Financing payable alter the date of the relevant Renter Default
through to the scheduled date of expiration of the Then Applicable Term to be
due and payable as liquidated damages for loss of a bargain and not as a
penalty; and
(f) Exercise any other right of remedy available to us at law or in equity.
Nothing in this clause permits us to claim from you the same amount twice
under sub-clauses (o)(i). Our rights, remedies and power under this
agreement are cumulative and in addition to (and not in derogation of) every
other right, remedy or power provided by law or equity.”
17. The above clause clearly provides that in case of default the agreement may be
terminated. Hence, the respondent could terminate the Master Agreement. There is no
merit in the plea of the petitioner that the termination of the Master Agreement is
illegal.
18. The next plea raised by the petitioner is that the invocation of the bank
guarantees is not in terms of the bank guarantees. Relevant portion of one of the bank
guarantees may be referred to. The same reads as follows:—
“Page No. 2/3 of BG No. 16090100000156
Dt.26.07.2012
Bank Guarantee
To:
Hewlett Packard Financial Services (India) Pvt. Ltd.
24, Salarpuria Arena, Hosur Main Road,
Adugodi, Bangalorc-560030
Whereas you have agreed to lease to M/s. Vayam Technologies Limited, a
company incorporated under Companies Act, 1956, having its registered office at
Thapar House, 124, Jan path, New Delhi-110001 (“the Customer”), equipment for
the term and at the rent and upon and subject to the terms and conditions
contained in the Master Rent and Financing Agreement/Master Lease Agreement
No. 364 (the “Master Agreement”) and the schedules thereto executed or to be
executed between the Customer and yourselves. Now in consideration of the above
and your requirement for security on the value of the lease, we, AXIS Bank Limited,
incorporated under the Companies Act 1956 and carrying •on the business of
banking under’ the Banking Regulation Act 1949, having its registered office at 3rd
Floor, Trishul, Opp. Samartheswar temple, Law Garden, Ellis Bridge, Ahmedabad-
380006 and one of its branch office at Statesman House 13th Floor, 148,
Barakhamba Road, New Delhi-110001' (“the Bank”) hereby irrevocably and
unconditionally undertake to pay you, upon receipt of your written demand the
whole of any sum which you may require from the Customer for the payment of
rental or any other amounts payable to you with respect to Schedule(s) NO. under
the Master Agreement and all future Schedules to be executed by yourself and the
Customer under the Master Agreement during the term of this Guarantee.
PROVIDED that the total amount recoverable from us under this Guarantee shall not
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exceed. Rs. 74,00,000/- (Rupees Seventy Four Lac Only) in aggregate.
Such payment shall be made ‘by direct transfer to an account in your name at
such bank in such place as you shall direct or by way of an irrevocable bank draft.
A written demand made by you shall, as between ourselves, be conclusive
evidence of the amount due and owing to you from the Customer and without
prejudice to the provisions of this Guarantee, we shall effect payment to you
immediately, without protest or question, after our receipt of such written demand
on or before 24.04.016 and without the need for you to take any legal action
against or to obtain the consent of Customer and notwithstanding any objection of
the Customer and without any proof of your claim or entitlement to it or conditions
whatsoever and without any right of set-off or counterclaim of whatever nature.
Such payment shall be made by direct transfer to an account in your name at such
bank and in such place as you shall direct or by way of an irrevocable bank draft.
Our obligations hereunder shall not be affected by any act, omission, matter or
thing which but for this provision might operate to release or otherwise exonerate
us from our obligations hereunder in whole or in part, including without limitation
and whether or not known to us or you, any time, indulgence, waiver or consent at
any time give to Customer or the taking, variation, compromise, renewal or release
of or refusal or neglect to perfect or enforce any rights, remedies or securities
against the Customer, any variation, amendment, increase or decrease to the credit
facility granted to the Customer or any legal limitation, unenforceability, invalidity
or frustration of any obligation of the Customer.
This guarantee shall come into force on 26.07.2012 and shall expire at this office
at 5pm on 24.04.2016, India time save that such expiration does not apply in
respect of any written claims you make that are received by us at the address
specified above no later than ninety (90) days following such expiry date i.e.
23.07.2016 (Claim Date).
Save for claims made by you no later than ninety (90) days following expiry
date, upon expiry this guarantee shall become null and void, this original letter of
guarantee shall be returned to us for cancellation, and any claim or statement
received after the expiry of the ninety (90) days period mentioned above shall be
ineffective.
……………….”
19. Hence, the only requirement for encashment stated in the bank guarantees is
receipt of a written demand that the whole or any sum which the respondent may
require from the customer for payment of rental or any other amount payable under
the Master Agreement etc. Similarly, the bank guarantee further states that the
written demand made shall be conclusive evidence of the amount due and owing to
the respondent from the customer.
20. A perusal of the letters sent by the respondent to different banks dated
08.08.2017 shows that encashment has been made as follows:—
“Bank Guarantee : Encashment of BG No-0844131GFIN0015 Dated-14-06
-2013
We refer to the above bank guarantee Number 0844131GFIN0015 for an amount
of Rs. 1,33,95,690/- (Rupees One Crore Thirty Three Lakh Ninety Five Thousand Six
Hundred Ninety Only) original of which is attached here with.
In accordance with our rights under the bank guarantee. We HEREBY DEMAND
that the said bank guarantee for an amount of INR 1,33,95,690.00 (Rupees One
Crore Thirty Three Lakh Ninety Five Thousand Six Hundred Ninety Only) to
be paid to us immediately under the said bank guarantee to Hewlett Packard
Financial Services India Ltd.”
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21. I may look at the legal position regarding the letter of encashment. In
Hindustan Construction Co. Ltd. v. State of Bihar (supra), the Supreme Court held as
follows:—
“8. Now, a Bank Guarantee is the common mode, of securing payment of money
in commercial dealings as the beneficiary, under the Guarantee, is entitled to
realise the whole of the amount under that Guarantee in terms thereof irrespective
of any pending dispute between the person on whose behalf the Guarantee was
given and the beneficiary. In contracts awarded to private individuals by the
Government, which involve huge expenditure, as, for example, construction
contracts, Bank Guarantees are usually required to be furnished in favour of the
Government to secure payments made to the contractor as “Advance” from time to
time during the course of the contract as also to secure performance of the work
entrusted under the contract. Such Guarantees are encashable in terms thereof on
the lapse of the contractor either in the performance of the work or in paying back
to the “Government Advance”, the Guarantee is invoked and the amount is
recovered from the Bank. It is for this reason that the Courts are reluctant in
granting an injunction against the invocation of Bank Guarantee, except in the case
of fraud, which should be an established fraud, or where irretrievable injury was
likely to be caused to the Guarantor. This was the principle laid down by this Court
in various decisions. In U.P. Cooperative Federation Ltd. v. Singh Consultants &
Engineers Pvt. Ltd., the law laid down in Bolivinter Oil SA v. Chase Manhattan Bank,
was approved and it was held that an unconditional Bank Guarantee could be
invoked in terms thereof by the person in whose favour the Bank Guarantee was
given and the Courts would not grant any injunction restraining the invocation
except in the case of fraud or irretrievable injury. In Svenska Handelsbanken v.
Indian Charge Chrome, Larsen & Toubro Ltd. v. Maharashtra State Electricity Board;
Hindustan Steel Works Construction Ltd. v. G.S. Atwal & Co. (Engineers) (P) Ltd.,;
National Thermal Power Corporation Ltd. v. Flowmore (P) Ltd.,; State of Maharashtra
v. National Construction Co.; Hindustan Steel Works Construction Ltd. v. Tarapore &
Co. as also in U.P. State Sugar Corporation v. Sumac International Ltd., the same
principle has been laid down and reiterated.
9. What is important, therefore, is that the Bank Guarantee should be in
unequivocal terms, unconditional and recite that the amount would be paid without
demur or objection and irrespective of any dispute that might have cropped up or
might have been pending between the beneficiary under the Bank Guarantee or the
person on whose behalf the Guarantee was furnished.
The terms of the Bank Guarantee are, therefore, extremely material. Since the
Bank Guarantee represents an independent contract between the Bank and the
beneficiary, both the parties would be bound by the terms thereof. The invocation,
therefore, will have to be in accordance with the terms of the Bank Guarantee; or
else, the invocation itself would be bad.”
22. The factual background of the above judgment would show that two separate
bank guarantees had been made in favour of the respondent. One bank guarantee was
against “mobilization advance” and other being the “performance bank guarantee”.
The Supreme Court held the bank guarantee to be qualified bank guarantee and could
be enforced only in the circumstances referred to. The bank guarantee was held not to
be unconditioned or unequivocal.
23. In the present case, the communications on record clearly shows that there is a
default in repayment. Admittedly, deeds of rescheduling have taken place and
thereafter there was cancellation of the contract. There is nothing to show that the
invocation of the bank guarantee as done by the respondent is not in terms of the
bank guarantee or an amount not on account of default in refund of the dues is
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claimed. Matter can be looked at another way. It is a re-financing of equipment
whereby the petitioner was to pay the value of the equipment in installments. The
petitioner has defaulted despite two separate deeds of rescheduling being executed.
Other than reiteration of the amount in the letter of invocation as stated in deed of
rescheduling, no other amount is being claimed from the petitioner.
24. Hence, the above judgment would be of no help to the petitioner.
25. Similar would be position regarding judgment of this court in the case of Puri
International Pvt. Ltd. v. NBCC (supra). There is no merit in the said submissions of
the petitioner.
26. There is no merit in the present petition and the same is dismissed.
27. All interim orders stand vacated.
———
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Vayam Tech Vs HP

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SCC Online Web Edition, Copyright © 2021

Page 1 Thursday, July 01, 2021

2018 SCC OnLine Del 7638 : (2018) 168 DRJ 621

In the High Court of Delhi at New Delhi

Vayam Technologies Limited .…. Petitioner

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