The High Court of Chhattisgarh recently ordered the National Thermal Power Corporation [NTPC] to attempt to resolve a contractual dispute amicably before invoking the bank guarantee constituted by its co-contracting party.
Prevent the statutory company from cashing the bank guarantee, if this has not already been done, Judge P. Sam Koshy observed,
“In view of the fact that the bank guarantee provided by the petitioner is valid until 29.05.2022, the defendants can have a negotiation and try to find a solution within a period prior to that and if necessary only thereafter to initiate a invocation procedure in respect of the bank guarantee. Respondents are therefore prevented from cashing the bank guarantee referred to in the preceding paragraph, if it has not been cashed to date.”
A writ petition was filed against NTPC for sending correspondence to HDFC Bank for invoking a bank guarantee. The case of the petitioner was that the clause of the agreement relating to the question of justification in the event of default was not respected.
Master SC Verma, representing the claimant, argued that the first phase of the contract had been performed to NTPC’s satisfaction. However, in the second phase, due to the impact of the COVID-19 pandemic, there were shortcomings in performing his duties according to schedule. The petitioner had informed the management of the NTPC many times.
He also argued that in this case, it was not until two days after the notice of termination was issued that the notice of invocation of the bank guarantee was also issued. However, according to the agreement, there must be a gap of 45 days between the two.
Lawyer Shri Anand Shukla, for the respondents, opposed the motion with a triple argument: a) unmaintainability due to the existence of an alternative remedy; (b) the jurisdiction of the Court versus the agreed jurisdiction of a court located in Delhi; and (c) the existence of precedents suggesting that courts should be slow to intervene in raising bank guarantee issues.
Findings of the Court
On the question of alternative remedy, the Court noted that the precedents cited do not preclude the jurisdiction of the Court if the Court otherwise has jurisdiction provided that the cause of action arose in the territories within the jurisdiction of the High Court. . He further observed,
“Similarly, on the aspect of an alternative remedy, the judicial decision does not take away the right of this Court to decide the case in exceptional circumstances. The judicial declarations referred to by counsel for the respondent NTPC clearly deal with this question in which it has been categorically asserted that, in a given case, if the party is able to invoke at the same time an exceptional case if the Court finds that an irreparable injustice would occur in the event that the Jurisdiction is not invoked by the Court, at any time the High Courts have power to hear the petition for an order.”
On the facts of the case, the Court observed that pursuant to the agreement, it was mutually agreed that any dispute would first be attempted to be resolved in good faith through negotiation and discussion. The Court also recognized the obstacles in the time of the COVID-19 pandemic and noted that the NTPC should have considered the grievance pragmatically, noting that,
“Every establishment has been affected by its impact. Defendant NTPC is no exception, and contractors hired by NTPC have also faced a similar situation.”
Noting that there was no effort on NTPC’s part to resolve the dispute amicably, the Court ordered NTPC to resort to the show cause and 45-day delay requirements. He also ordered the parties to pursue other remedies only if the negotiation process by NTPC failed.
The Court also observed that the notice of termination would not come into effect until the expiry of a period of 45 days. However, in this case, within two days, the defendants resorted to the invocation of the bank guarantee.
Case Title: M/s SS Chhatwal and Company v. NTPC & Anr
Quote: 2022 LiveLaw (Chh) 9
Click here to download the order