M/S BSES LTD. (NOW RELIANCE ENERGY LTD.) versus M/S FENNER INDIA LTD: AND ANR.

M/S BSES LTD. (NOW RELIANCE ENERGY LTD.) versus M/S FENNER INDIA LTD: AND ANR.

The appellant, under the wrap-around agreement, had the right to encash any or all of the unconditional and irrevocable bank guarantees for any breach in any of the terms of the four contracts. The court found no prima facie case of fraud or irretrievable injustice, and determined that the appellant was justified in invoking the guarantees. The bank and courts are not to inquire into alleged contractual performance deficiencies when the terms of the guarantee are unconditional, and disputes regarding enforceability may be adjudicated in ongoing arbitration.

Parties
Appellant: BSES Ltd. (now Reliance Energy Ltd.); First Respondent: M/s Fenner India Ltd.; Second Respondent: State Bank of India
Jurisdiction
India
Judgment Date
03 February 2006
Procedural Posture
Civil Appeal / Appeal From High Court Judgment
Outcome
appeal allowed
Legal Topics
Bank Guarantee Enforcement, Injunctions in Arbitration, Fraud and Special Equities, Interim Relief, Turnkey Contract Performance
Arbitration Commercial Law Bank Guarantee Enforcement Injunctions in Arbitration Fraud and Special Equities Interim Relief Turnkey Contract Performance

Case Brief

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Parties

BSES Ltd. (now Reliance Energy Ltd.)

Appellant

M/s Fenner India Ltd.

First Respondent

State Bank of India

Second Respondent

Procedural Posture

Civil Appeal / Appeal From High Court Judgment

Legal Issues

  1. 1 Is the appellant entitled to encash unconditional and irrevocable bank guarantees despite disputes with the respondent regarding contractual performance?
  2. 2 Are there grounds for restraining the invocation of bank guarantees under Section 9 of the Arbitration and Conciliation Act, 1996 based on alleged fraud or special equities?

Ratio Decidendi

The appellant, under the wrap-around agreement, had the right to encash any or all of the unconditional and irrevocable bank guarantees for any breach in any of the terms of the four contracts. The court found no prima facie case of fraud or irretrievable injustice, and determined that the appellant was justified in invoking the guarantees. The bank and courts are not to inquire into alleged contractual performance deficiencies when the terms of the guarantee are unconditional, and disputes regarding enforceability may be adjudicated in ongoing arbitration.

Court Disposition

appeal allowed

Orders

  • High Court judgment set aside; District Judge's order affirmed, except for status quo direction.
  • Appellant entitled to encash bank guarantees; Second Respondent Bank may honour guarantees, subject to adjustment in arbitral proceedings.