Delhi High Court: IOCL restrained from encashing Bank Guarantees, Ad-interim order passed

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In the case of Ashwini Mehra vs. IOCL & Ors. on 17th April 2020, via WP (C) 2966/2020 and WP (C) 2971/2020 Punjab Lloyd Limited (PLL) was seeking injunction quashing the move of Indian Oil Corporation Limited (IOCL) invoking certain the bank guarantees which were issued in accordance with the terms of the contract between PLL and IOCL, relating to the Haldia Refinery Project. PLL also seeks to stay the invocation/encashment of these bank guarantees.

Facts of the case

National Company Law Tribunal (NCLT) on 13th December 2019 had passed an interim order against IOCL injuncting invocation and encashment of the five bank guarantees which form the subject matter of this case. On 23rd December 2020, the Division Bench of the Delhi High Court passed an order relegating IOCL remedies against NCLT in accordance with which IOCL moved an application to NCLT seeking vacation of the previous interim order on the grounds of lack of jurisdiction.

Owning to the lockdown extension announced by the Central Government till 3rd May 2020, Mr Nayar on behalf of the petitioner, as per the notification of NCLT regarding the hearing of unavoidable urgent matters, has addressed an email on 22nd March 2020 to the Registry, NCLT, Chennai but is yet awaiting a response.

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Meanwhile, IOCL had already invoked the bank guarantees by the way of the communication dated-

  1. 10th April 2020 addressed by IOCL to Central Bank of India which resulted in the furtherance of the communication dated 11th April 2020 from the Central Bank of India to the petitioner, and
  2. 12th April 2020 from IDBI Bank Ltd. to the petitioner.

Two bank guarantees have already been invoked and encashed but the other bank guarantees along with the three bank guarantees were yet to be encashed as the money had still not been transferred to the bank account of IOCL.

Issues before the Court

After the invocation of the bank guarantees by IOCL, the petitioner moved to the Delhi High Court under Article 226 seeking issuance of appropriate writ quashing the communications dated 10th April 2020 and 12th April 2020. The first issue of this petition is whether the said communication should be quashed by the HC.

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The petitioner was also seeking directions to restrain encashment of the bank guarantees which were yet to be encashed. The second issue is whether the HC should pass an order of injunction against the invoking/encashing of bank guarantees.

Arguments of the Petitioner

Mr Nayar on behalf of the petitioner submitted that the petitioner intended to approach NCLT in order to seek an injunction against IOCL from encashing/invoking the three bank guarantees but owing to the COVID-19 crisis and the lack of response received from the Registry, NCLT, Chennai they were left with no choice but to approach the Delhi High Court by the way of Article 226.

The petitioner only sought limited amnesty by the way of restraining IOCL from encashing the bank guarantees which it had already invoked. It was prayed that an order of injunction is passed against IOCL till the expiry of one week after the end of the present lockdown which is in force till 3rd May 2020.

Arguments of the Respondent

Mr Koura on behalf of the respondent submitted that even if the court was inclined to pass an order restraining IOCL from encashing the three bank guarantees then it should clarify that such relief is only being granted to the petitioner in view of the inability of the petitioner to move to the NCLT in order to seek an injunction at present and should not be treated as an opinion, even tentative, regarding the merits of the case, the entitlement of the petitioner and the injunction sought against the encashment of the bank guarantees.

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The bank guarantees which have already been invoked and encashed and hence the prayer in the writ petition does not survive with respect to the said bank guarantees The respondent also submitted that he needed to take instructions with respect to the other set of bank guarantees and hence requested the court to not dispose of the petition.

Order passed by the Delhi High Court

This matter was taken up by the Delhi High Court via video conferencing and the court disposed of the first petition after passing an injunction against IOCL from invoking or encashing the three bank guarantees till one week after the expiry of the present lockdown which is in force till 3rd May 2020. The court also recorded that this order was being passed without going into the merits of the matter and hence was not to be construed as a reflection, even prima facie, of such merits or the entitlements of the petitioner, to an injunction against the invocation or encashment of the bank guarantees in question.

With respect to the other set of bank guarantees, the matter has been listed for 10th June 2020 while a notice has been issued to the respondents to show cause as to why the rule should not be issued. The said notice has been accepted by Mr Koura on behalf of the respondents and affidavit is to be filed with a copy to the petitioner within four weeks to which the petitioners will respond within the following two weeks. Ad interim order for the same was passed till the next date of the hearing restraining IOCL from encashing bank guarantees which are yet to be invoked.

This order was passed by the Single Judge Bench of Justice C. Hari Shankar.

Senior Advocate Mr. Rajiv Nayar along with Mr. Kartik Nayar, Ms. Anindita Roychowdhury, Ms.Vatsala Rai and Mr. Raghav Chadha was representing the petitioners while Mr. V.N.Koura represented IOCL and Mr. Ankur Mittal represented the Banks.


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