Delhi HC quashes water board plea

The Delhi High Court has dismissed Satluj Jal Vidyut Nigam Ltd's (SJVNL) appeal seeking encashment of bank guarantee worth Rs 75 crore given by Jai Prakash Hyundai Consortium (JHC) for recovery of outstanding ad hoc amount due to the delay in the construction of the 1500-Mw Nathpa Jhakri Hydroelectric project in Himachal Pradesh.

While dismissing the appeal, a division bench of Justice Vijender Jain and Justice Rekha Sharma said that JHC was entitled to protection by way of injunction against encashment of bank guarantees, ie, performance guarantees and guarantees in lieu of the retention money to the tune of Rs 75 crore in order to effect recovery of its alleged claim of Rs 53.12 crore, till the settlement of the claims of the contractor by the arbitral tribunal.

"Faith and reliance upon the integrity of standby payment is vital for international as well as national commercial activities. Therefore, a non-interventionist approach has been adopted by the courts," the judges said.

While setting aside the single judges order directing JHC to furnish fresh bank guarantees of Rs 53.60 crore for securing adhoc payments, the bench also said that the court cannot create a new contract between the parties which they never agreed during the subsistence of the main contract.

"Directing the contractor JHC to furnish fresh bank guarantees to secure the ad hoc payments, in our view, amounts to creating a new contract, not permissible in law as it is neither in the ambit of the main contract nor was agreed upon between the parties," the court said in its order.

SJVNL had filed an appeal against the single judge's order that had restrained it from invoking the existing bank guarantee given by Jai Prakash Hyundai Consortium (JHC) towards performance security and retention money for the purpose of recovery of outstanding ad hoc amount from the JHC.

The judge in its impugned order had directed that the SJVNL's interest could be safeguarded to the extent of the outstanding amount of the adhoc payment by asking JHC to furnish a new bank guarantee of the equivalent amount in the SJVNL's favour till the settlement of disputes.

However, JHC had also filed another appeal against furnishing a new bank guarantee of the equivalent amount in favour of the SJVNL. JHC had filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 for an interim order restraining SJVNL from encashing the bank guarantee,

JHC had in June 1993 entered into a joint venture contract with SJVNL for construction of the 1500-MW Nathpa Jhakri Hydroelectric project in Himachal Pradesh. The World Bank had also funded the project to a large extent.

It was alleged that on account of delay attributable to SJVNL, JHC had filed a claim for more than Rs 36 crore and the bank guarantee furnished by JHC was an unconditional and absolute guarantee and JHC cannot resist its encashment.