Chhattisgarh High Court Restrains NTPC From Invoking Bank Guarantee Against Contracting Party Before Trying Conciliation

The Chhattisgarh High Court recently directed the National Thermal Power Corporation [NTPC] to try and amicably resolve a contractual dispute before proceeding to invoke the bank guarantee furnished by its contracting party.

Restraining the statutory corporation from encashing the bank guarantee, if not done yet, Justice P. Sam Koshy observed,

"Considering the fact that the bank guarantee furnished by the petitioner is valid up till 29.05.2022, the respondents can have a negotiation and try to come out with a solution within a period earlier to that and if required only thereafter to initiate invocation proceedings so far as the bank guarantee is concerned. The respondents accordingly are restrained from encashing the bank guarantee referred to in the preceding paragraph, if not encashed by now."

Background

A writ petition was filed against NTPC for issuing correspondence to HDFC Bank for invocation of a bank guarantee. The petitioner's case was that the clause in the agreement relating to the issue of show-cause in case of default has not been adhered to.

Advocate S.C. Verma, appearing for the petitioner, submitted that the first phase of the contract was fulfilled to the satisfaction of NTPC. However, in the second phase, due to the impact of the COVID-19 pandemic, there were shortfalls in the discharge of his duty as per schedule. The petitioner had apprised management of NTPC time and again.

He also argued that in the present case, only within two days of issuing the notice of termination, the notice of invocation of the bank guarantee was also issued. However, as per the agreement there has to be 45 day gap between the two.

Advocate Shri Anand Shukla, for the respondents, opposed the petition with a three-prong submission: a) non-maintainability due to the existence of an alternative remedy; (b) the jurisdiction of the Court against agreed jurisdiction of a court situated in Delhi; and (c) existence of precedents that suggest that courts should be slow in interfering with invocation of bank guarantee matters.

Findings of the Court

On the question of alternative remedy, the Court noted that the cited precedents do not preclude the jurisdiction of the Court if the Court otherwise has jurisdiction provided that the cause of action has arisen within the territories of the jurisdiction over which the High Court has. It further observed,

"Likewise, on the aspect of an alternative remedy also the judicial pronouncement do not take away the right of this Court in deciding the matter in an exceptional circumstances. The judicial pronouncements referred to by the counsel for the respondent NTPC clearly deal with this issue wherein it has been emphatically held that in a given case if the party is able to make out an exceptional case at the same time if the Court finds that an irretrievable injustice would occur in the event if the writ jurisdiction is not invoked by the Court, at a given moment of time, the High Courts do have the power to entertain the writ petition."

On the facts of the case, the Court observed that as per the agreement, it was mutually agreed that any dispute would be first tried to be resolved in good faith by negotiation and discussion. The Court also acknowledged the barriers in the times of COVID-19 pandemic and noted that NTPC should have considered the grievance pragmatically, noting that,

"Every establishment has been adversely affected by its impact. The respondent NTPC is no exception, and the contractors engaged by the NTPC also were faced with similar situation."

Noting that there has been no effort on the part of NTPC for resolving the dispute amicably, the Court directed NTPC to resort to the conditions of show-cause and 45 days time period. It also directed the parties to avail of other remedies only on the failure of the negotiation proceedings by NTPC.

The Court also observed that the notice of termination would come into effect only on the completion of 45 days. However, in the present case, within two days, the respondents resorted to the invocation of the bank guarantee.

Case Title: M/s S.S. Chhatwal and Company v.  NTPC & Anr

Citation: 2022 LiveLaw (Chh) 9

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