Irretrievable Injury That May Be Caused To A Party Should Also Be Considered While Invocation Or Encashment Of Bank Guarantee: Chhattisgarh HC

The Chhattisgarh High Court observed that the aspect of irretrievable injury that may be caused to a party should also be considered while its invocation/encashment of bank guarantee.

The Court observed thus while quashed an order by a Single Judge for not considering the irretrievable injury that could have been caused to the party after invoking the bank guarantee.

In that context, the Bench of Chief Justice Ramesh Sinha and Justice Ravindra K Agrawal observed that, "Though Bank Guarantee is a bilateral contract between the Bank and the beneficiary, the aspect of irretrievable injury that may be caused to a party should also be considered while its invocation/encashment, especially when the obligation to complete the work for which the Bank Guarantee was given, has been fulfilled."

BGR Energy was awarded a contract by CSPGCL for the design, engineering, and supply of materials for the '2x500 MW Marwa Thermal Power Project.' The project had a 30-month completion timeline, but BGR Energy failed to complete the work on time. CSPGCL extended the deadline several times upon BGR's request, with additional conditions. In 2018, CSPGCL issued a trial operation certificate to BGR Energy, and the company later entered a supplementary agreement to complete the remaining work.

On January 24, 2023, BGR Energy requested CSPGCL to release Rs. 129.37 crores and to release performance bank guarantees. However, on March 6, 2023, CSPGCL moved to invoke bank guarantees amounting to Rs. 163.37 crores. In response, BGR Energy filed a writ petition in the Madras High Court and obtained an interim order on April 27, 2023. However, the petition was later dismissed due to jurisdictional issues. BGR Energy then moved the Chhattisgarh High Court, but the single judge bench dismissed the petition on November 28, 2023, leading the company to appeal to the division bench.

The High Court observed that, "the learned Single Judge has erred in law by not considering the aspect with regard to irretrievable injury that would be caused to the appellant/writ petitioner if the BGs are allowed to be encashed. The net worth of the appellant would completely stand wiped out. The appellant herein has admittedly approached the State Arbitral Tribunal for the adjudication of its claims and till his claims are adjudicated, equity demands that the respondent/CSPGCL be restrained from encashing/invoking the BGs which, as per the learned counsel for the parties, have already been extended for a period of one year."

Accordingly, the appeal was allowed.

Cause Title: M/s BGR Energy Systems Ltd. vs Chhattisgarh State Power Generation Co. Ltd. & Anr. (Neutral Citation: 2024:CGHC:28722-DB)

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