M/S. Panchamy Pack (P) Ltd. vs Travancore Devaswom Board

Thomas P. Joseph, J.—An award was passed in favour of petitioner and against the respondent for recovery of Rs. 18,86,95,499/- with interest. Respondent, invoking Sec.18 of the Micro, Small and Medium Enterprises Development Act, 2006 (for short, "the Act") filed O.P.(Arbitration) No. 34 of 2012 before the learned I Additional District Judge, Thiruvananthapuram to set aside that award. In view of Sec.19 of the said Act, respondent deposited Rs. 14,15,21,624/- being 75% of the amount due under the award. Petitioner filed I.A.No.324 of 2012 before the learned Additional District Judge for release of 50% of the said amount. Learned Additional District Judge passed Ext.P5, order dated 22.03.2012 allowing petitioner to withdraw 50% of the said sum (of Rs. 14,15,21,624/-) subject to the conditions that petitioner shall furnish sufficient bank guarantee before court to pay back the said amount in the event of the award being set aside or modified and on executing bond for the said amount with two solvent sureties. There was a further direction to deposit the remaining 50% of the amount in deposit in fixed deposit in a nationalized bank until disposal of the original petition. Petitioner is aggrieved by the condition directing it to execute bond with two solvent sureties and has challenged that condition in this Original Petition filed under Article 227 of the Constitution. Learned Senior Advocate appearing for petitioner contends that the condition requiring petitioner to execute bond with two solvent sureties is very harsh as it is very difficult to get two solvent sureties for that much amount. It is also the submission of learned Senior Advocate that since a bank guarantee (Ext.R(a) is its photocopy) has already been furnished before learned Additional District Judge for 50% of the amount which learned Additional District Judge has allowed petitioner to withdraw, that is sufficient guarantee before the court to pay back the said amount in the event of the award being set aside or modified. Learned Senior Advocate has invited my attention to the effect of bank guarantee, relying on the decision in Syndicate Bank Vs. Vijay Kumar and others, .

Learned Senior Advocate for the respondent has contended that the bank guarantee produced is conditional in that it depends on the amount being withdrawn by the petitioner and that such a bank guarantee would not serve the purpose in view of the fact that the amount involved is huge. It is contended that petitioner, a private limited company is otherwise encumbered for huge amounts and if the bank guarantee is not proper and sufficient it will be difficult for the respondent to realise the amount being withdrawn by the petitioner if ultimately the award is set aside or modified.

I have referred to the conditions learned Additional District Judge has imposed while allowing petitioner to withdraw 50% of the amount deposited. Syndicate Bank v. Vijay Kumar deals with the effect of a bank guarantee. In paragraph 12 it is pointed out that it is a well known business transaction in the world of commerce and that now bank guarantee has become the backbone of banking system and that enforceability of the bank guarantee depends on the terms under which the guarantor has bound himself. In paragraph 14, it is pointed out that the court should refrain from probing into the nature of transactions between the bank and the customer which led to the furnishing of the bank guarantee (obviously because issue of bank guarantee is the result of a contract between the customer and banker). Learned Senior Advocate for petitioner has pointed out that the very purport of Sec.19(2) of the Act read along with the proviso thereto is to allow the respondent in the proceedings for setting aside the award to realise a portion of the amount in deposit. According to the learned Senior Advocate, if there are harsh conditions difficult to be performed, the very purport of the provision would stand defeated. Learned Senior Advocate therefore contended that the bank guarantee (Ext.R(a)) is sufficient to allay apprehension of the respondent.

Learned Senior Advocate for the respondent in response would contend that even as Ext.R(a) would reveal, it is dependant on the amount that is being withdrawn by the petitioner from the court as is disclosed by Clause (ii) of the condition that "it is a bank guarantee fully secured against the proceeds of the instrument/cheque/DD to be released by the court". Learned Senior Advocate has also objection to the former part of the said condition.

So far as the former part of Clause (ii) of the condition in Ext.R(a), I do not find anything much objectionable since the former part of the said Clause only say that the "guarantee would come into force from the date of realisation of the cheque amount as above received from the honourable court of the Additional District Judge-I". But the latter part of Clause (ii), ie., "as it is a bank guarantee, fully secured against the proceeds of the instrument/cheque/DD to be released by the court" is likely to cause some confusion as regards enforceability of the bank guarantee and whether it is dependant on the amount being withdrawn by the petitioner from the court of learned Additional District Judge.

Having heard learned Senior Advocates on both sides I am inclined to think that the latter part of the condition imposed by learned Additional District Judge to execute bond with two solvent sureties for the amount being withdrawn is not necessary as it may cause difficulties for the petitioner. At the same time, interest of the respondent who seeks the award to be set aside or modified and if it so happens, has to be protected particularly as petitioner is a private limited company and according to the respondent, it is otherwise indebted. Apprehension of the respondent can be allayed by directing that petitioner shall produce an irrevocable bank guarantee without having the latter part of Clause (ii) of the conditions now seen provided in Ext.R(a), ie., "as it is a bank guarantee, fully secured against the proceeds of the instrument/cheque/DD to be released by the court". In short, the bank guarantee that petitioner shall produce before learned Additional District Judge shall be irrevocable and shall not contain the above said condition. Original Petition is allowed in part as under:

i. The condition imposed by the learned I Additional District Judge, Thiruvananthapuram as per order dated 22.03.2012 on I.A.No.324 of 2012 in O.P.(Arbitration) No.34 of 2012 requiring petitioner to execute bond for the amount being withdrawn with two solvent sureties is deleted.

ii. It is directed, in modification of the condition imposed by learned Additional District Judge for production of bank guarantee that petitioner shall produce an irrevocable guarantee which shall not contain a clause like "as it is a bank guarantee, fully secured against the proceeds of the instrument/cheque/DD to be released by the court" as it appears in Clause (ii) of the conditions in Ext.R(a), bank guarantee already produced.

iii. On compliance with the condition above stated, learned I Additional District Judge shall release 50% of the amount in deposit to the petitioner.