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Merits and the terms of contract are irrelevant for invoking of the bank guarantees

In Sabarkantha Annuity Pvt. Ltd. Vs. NHAI and Ors, the Petitioner filed before the Delhi High Court  petition under Section 9 of the Arbitration and Conciliation (Amendment) Act, 2015 with a prayer that, Respondents be restrained from acting upon the letter dated 15th September, 2017 or from invoking the Bid securities of the Petitioner to the tune of Rs. 10.93 Crores and also restraining the banks from honouring the invocation of said bank guarantees on behalf of Respondent No. 1 acting in terms of letter dated 3rd November, 2007. Petitioner has relied upon Clauses Nos. 9.1.1, 9.1.2 and 4.3 of the agreement dated 28th April, 2017 entered into between the parties to say the claim for damages since is not a claim for a sum presently due and payable and the respondent would be entitled to damages only on proof of loss, per Clause 4.3 of the agreement and hence is not entitle to the entire sum of bid security. 

The Court found that Clause No. 9.1.2 speaks of an exclusive right of the authority to encash the bid security. It opens with a non-obstante clause saying notwithstanding anything contrary contained in this agreement if the performance security is not provided within a period of thirty days from the date of the agreement the authority can encash the bid security and appropriate the proceeds thereof as damages and the rights of the concessionaire under or arising under the agreement shall be deemed to have been waived off and this agreement is deemed to have been terminated by the mutual agreement between the parties. 

Clause No. 9.1.2 shows that, invocation of Bid security and appropriating its proceeds is independent of Clause No. 4.3. The question, if any, damages accrue or not shall be a question within the domain of arbitration, if invoked. At this stage, the Court needs to see whether the Petitioner failed to submit performance securities in time per provisions of the agreement. 

The Court held that the law qua encashment of bank guarantee is well settled. It being an independent contract and lest any fraud or irretrievable loss to the Petitioner is alleged, no stay can be granted by the Court. The merits and the terms of contract are irrelevant for invoking of the bank guarantees. At this stage, one can only go through the terms of the bank guarantee to find if any fraud was committed while entering into such contract and nothing beyond and since the Petitioner has not alleged fraud, the invocation of BG cannot be interfered into.

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