Several principles relating to territorial jurisdiction have been discussed and applied by the Delhi High Court in its recent decision in Bharat Heavy Electricals Limited (BHEL) vs Electricity Generation Incorporation (EGI) and Others.
EGI is a power generation company owned by the Turkish government, and BHEL had entered into a contract with EGI for execution of works in Turkey. AK Bank, a private bank in Turkey, issued a performance bank guarantee to EGI for BHEL. AK Bank furnished the bank guarantee on the basis of a counter bank guarantee issued to AK Bank by Bank of Baroda from its New Delhi branch office. EGI terminated the contract with BHEL on grounds of non-performance, and invoked the bank guarantee furnished by AK Bank. In turn, AK Bank sought to invoke the counter bank guarantee issued by Bank of Baroda. At that juncture, BHEL filed commercial suit before the Delhi High Court seeking injunction to restrain Bank of Baroda from paying the amount under counter bank guarantee. BHEL also sought a declaration that EGI’s invocation of bank guarantee furnished by AK Bank was illegal. BHEL’s case was that termination of contract by EGI was not preceded by a valid notice, and that EGI had not performed its reciprocal obligations under the contract.
The counter-bank guarantee agreement had conferred jurisdiction at the Commercial Courts at London for settlement of disputes. BHEL, however, sought to maintain the suit in Delhi on ground that counter bank guarantee was issued from New Delhi office. Paucity of time in approaching London courts was also pleaded.
Justice Mukta Gupta, who dealt with the issue, returned the plaint on lack of territorial jurisdiction on the basis of following grounds:
Performance Bank Guarantee Is Independent From Underlying Contract
Relying on National Highways Authority of India vs Ganga Enterprises 2003 (7) SCC 410, it was held that bank guarantee was independent from the underlying contract. The contention on behalf of BHEL was that relationship between BHEL and Bank of Baroda was governed by an omnibus agreement, and the agreement having been executed in Delhi, a part of cause of action arose in Delhi. This contention was rejected noting that a Bank Guarantee is an independent contract and the existence or non-existence of the underlined contract is irrelevant to a Bank Guarantee. So, a Bank Guarantee has to be dealt with strictly by its terms alone, without reference to underlying contract.
Mere Issuance Of Bank Of Guarantee From A Place Won’t Confer Territorial Jurisdiction On Courts Of That Place
The court clarified that independence of bank guarantee from mother contract will not confer jurisdiction at the place where the bank guarantee was issued. It was noted the independence of a contract for guarantee simply means that the dispute concerning the bank guarantee has to be resolved in terms of the bank guarantee i.e. the bank guarantee is the complete contract between the bank issuing the guarantee and the beneficiary. But since the bank guarantee flows out of the mother contract the jurisdictional issue has to be resolved in the context of the cause of action arising under the contract for the reason a guarantee is invocable, though in terms of the guarantee, but in relation to the main contract (Referring to Delhi High Court’s judgment in Hellenic Electricity Distribution Network Operator vs Bharat Heavy Electricals Limited.; Reliance also placed on South East Asia Shipping Co Ltd vs Nav Bharat Enterprises Pvt Ltd (1996) 3 SCC 443).
Word Like ‘Alone’ ‘Only’ Etc Not Needed To Confer Exclusive Jurisdiction
BHEL raised a contention that the words ‘alone’ ‘only’ etc were absent from the clause in counter bank guarantee which vested jurisdiction in Commercial Courts at London. So it was contended that there was no exclusiveness of jurisdiction at London. This contention was rejected on ground that there was an implied exclusion of other jurisdiction. The SC decision in Swastik Gases Pvt Ltd vs Indian Oil Corporation Ltd 2013 (9) SCC 32, which had held decided the same issue on basis of maxim that expression of one will exclude the others, was relied upon.
No Injunction Against Bank Guarantee On Ground Of Breach Of Contract By Party Invoking Guarantee
BHEL contended that EGI had committed fraud and breach of contract, and was not entitled to invoke the performance guarantee. It said if the invocation of performance bank guarantee by EGI is illegal, then the invocation of counter bank guarantee will also be illegal. However, the court held that the bank guarantee has to be interpreted independently only with reference to its terms. The issue whether the party invoking guarantee committed breach cannot be gone into a suit seeking to restrain invocation of counter-bank guarantee. The following observations of Supreme Court on the point were extracted for support: Once the documents are in order the bank giving the guarantee must honour the same and make payment ordinarily unless there is an allegation of fraud or the like. The Courts will not interfere directly or indirectly to withhold payment, otherwise trust in commerce internal and international would be irreparably damaged. But that does not mean that the parties to the underlying contract cannot settle the disputes with respect to allegations of breach by resorting to litigation or arbitration as stipulated in the contract. The remedy arising ex contractu is not burred and the cause of action for the same is independent of enforcement of the guarantee (UP State Sugar Corporation vs Sumac International Ltd 1997 (1) SCC 568).
The court noted where one party is not subject to the law of India, the parties may vest jurisdiction outside the country in a neutral forum, although under the Civil Procedure Code, parties cannot confer jurisdiction by choice on a court which does not have jurisdiction otherwise. BHEL relied on the English decision in Owners of Cargo lately Laden on Board the Ship or Vessel Eleftheria vs The Eleftheria (Owners), which had listed the exceptional circumstances where a local court can assume jurisdiction ignoring clause conferring jurisdiction on foreign courts. Grounds of prejudice on racial/political/religious grounds, deprivation of security of claim etc are some of such exceptional circumstances. The court did not accept BHEL’s contention of paucity of time to approach London courts.
As per the pleadings in the plaint, the plea taken by BHEL is not of expense or procedure or the law of England being different or that conditions are such that BHEL cannot proceed against the parties at London but is paucity of time, which is not one of the grounds recognized. Even if this Court accepts that paucity of time is one of the grounds, time can be granted to BHEL to approach the Court of competent jurisdiction. Claim of BHEL being not based on the omnibus agreement but on the basis of Performance Bank Guarantee and Counter Guarantee, conditions as noted in Eleftheria (supra) are not applicable to the present case and hence the contentions raised in terms of fifth and sixth submissions also deserve to be rejected, the court held.