Delhi High Court: An application under Section 9 of the Arbitration Act must be made with Clean Hands

 

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The Delhi High Court bench comprising of J. C. Hari Shankar in the case of UNI Construction v. IRCON International Limited, on July 16, 2020 dealt with the issue of availability of interim protection under Section 9 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) to the applicant who is found to have suppressed material facts in his application.

Facts

The respondent had invited tenders on October 24, 2017 for construction of certain buildings. Subsequent to which, the tender was allotted to the petitioner on January 18, 2018. The terms of the General Conditions of Contract (“GCC”) between the parties required the petitioner to furnish a Performance Guarantee in the form of irrevocable bank guarantees. The petitioner asserted that he had submitted two bank guarantees (of amounts Rs 16,51,300 and Rs. 7,00,000) covering 50% of the contract value i.e. Rs. 23,51,300.

Further, the Respondent on June 16, 2020 issued a 7 days notice to petitioner in accordance with clause 50 of the GCC which entitled the respondent to terminate the contract in certain specific circumstances. The termination clause was invoked as a result of incompletion of the work. By the said notice the petitioner was asked to make good its default. Pursuant to this, the petitioner tried to invoke the ‘force majeure’ clause stipulated in clause 71 of GCC stating that the COVID-19 circumstances constituted ‘force majeure’.

Under the apprehension that the respondents will invoke the bank guarantee of 7 lakhs, the petitioner filed an application under Section 9 of the Arbitration Act requesting the court to pass an order restricting the respondent from invoking the said bank guarantee.

Arguments Advanced

The respondents contended that the two bank guarantees submitted by the petitioner were actually term deposits. Further, it was submitted that the petitioner, suo moto and without any notice, had encashed the term deposit of Rs. 16,51,300 before the completion of the work and that this material fact was not disclosed by the petitioner in the petition. Thereby, the respondent requested the petition to be dismissed on the ground of suppression of facts.

Decision

The Court observed that there had been clear suppression of the fact that prior to the completion of work and in violation of GCC, the petitioner had liquidated the term deposit which covered almost 75% of the performance security. Further, any interlocutory relief claimed under Section 9 of the Arbitration Act, or Order 39 of the Code of Civil Procedure, 1908 (“CPC”) or even Article 266 of the Constitution of India is discretionary in nature and invocation of such discretionary jurisdiction requires the applicant to be candid and approach the court with clean hands. Moreover, suppression of material facts constitutes an act of fraud and therefore, the applicant is disentitled from availing any discretionary relief under Section 9.

It was further observed that the circumstances, in which interlocutory relief is granted under Section 9, are similar to those which apply to under Order 39 of CPC. Therefore, relief under these provisions can be granted only if the considerations of a prima facie case, balance of convenience, and irreparable loss, are cumulatively made out.

Read judgement here.

By Sakshi Dewangan



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