Holding

The stay order restraining the respondent from invoking the bank guarantees cannot be continued as the petitioner's Section 9 application was predicated on fraud allegations that were rejected and no special equity was demonstrated, and the partial arbitral award in favour of the respondent remains effective.

Summary

Yograj Infra Ltd. furnished bank guarantees under a construction contract with Ssang Yong Engineering & Construction Co. Ltd. After the contract was terminated for alleged non‑performance and over‑payment, the respondent invoked the guarantees. Yograj filed a Section 9 application under the Arbitration and Conciliation Act, 1996 seeking an injunction on the ground of fraud, which was dismissed by the district court and the High Court. The petitioner then filed a Special Leave Petition alleging fraud; the Supreme Court stayed the invocation of the guarantees, and the petitioner also lodged a criminal complaint that was later quashed. The Supreme Court held that since the fraud allegations had been rejected in both criminal and civil proceedings and no special equity was shown, the stay could not be maintained, especially as a partial arbitral award favouring the respondent had not been challenged. Consequently, the stay order was vacated and the Special Leave Petition dismissed.

Issues considered

Whether a stay order under Section 9 of the Arbitration and Conciliation Act, 1996 can be sustained when the petitioner's claim of fraud has been rejected.
Whether the doctrine of special equities can justify continuation of the stay despite the absence of a fraud finding.
Effect of an unchallenged partial arbitral award on the right of the respondent to invoke bank guarantees.
Whether the outcome of parallel criminal proceedings influences the civil injunction sought under Section 9.

Legislation cited

Subjects

bank guaranteeSection 9 injunctionarbitrationfraud allegationspecial equitiespartial arbitral awardconstruction contractcriminal complaintSpecial Leave Petition

Judgment

[2012] 1 S.C.R. 456

A YOGRAJ INFRAS. LTD.
v.
SSANG YONG ENG. & CONSTRN. CO. LTD. & ANR.
(Special Leave Petition (C) No. 24746 of 2010)
JANUARY 31, 2012
B
[ALTAMAS KABIR AND JASTI CHELAMESWAR, JJ.]

BANK GUARANTEE:

c Construction contract - Dispute between parties-
Invocation of bank guarantees - Held: Since the petitioner's
application uls 9 of Arbitration and Conciliation Act to restrain
the respondent from invoking the bank guarantees was based
mainly on a/legations of fraud, whicf] have been rejected, and
0 further the partial award has been made by arbitral tribunal,
which has not been questioned by the petitioner, the plea
relating to special equities, cannot be accepted - Arbitration
and Conciliation Act, 1996-s.9.

Pursuant to a construction contract, the petitioner
E furnished Bank guarantees whereby the bank undertook
to pay to respondent no.1 on its first written demand any
sum or sums within the limits of the respective bank
guarantees. Dispute arose between the parties relating to
the performance of the petitioner in completing the work.
F Respondent no.1 terminated the contract and invoked the
bank guarantees. The petitioner made a prayer in an
application filed uls 9 of the Arbitration and Conciliation
Act 1996 before the District Judge seeking injunction
against the respondent invoking the Bank guarantees.
G The application was dismissed. The appeal therefrom
was also dismissed by the High Court. Aggrieved, the
petitioner filed the instant special leave petition alleging
fraud on the part of respondent no. 1. Supreme Court
stayed invocation of the Bank Guarantees. The petitioner
H 456
YOGRAJ INFRAS. LTD. v. SSA~G YONG ENG & 457
CONSTRN. CO. LTD. & ANR.
also filed a criminal complain,t against respondent no. 1 A
making the same allegations w~ich were made in the
Special Leave Petition. The complaint was quashed by
the High Court. The Special Leave Petition of the
petitioner was also dismissed by the Supreme Court.
Consequently, respondent No. 1 filed an application for B
early hearing and disposal of the instant Special Leave
Petition.

Disposing of the matters, the Court

HELD: Since the Petitioner's application u/s 9 of the C
Arbitration and Conciliation Act, 1996, was based mainly
on. allegations of fraud, which have been rejected, there
was no foundation for the stay order passed in these
proceedings to continue. Both in the criminal
proceedings as also in the proceedings u/s 9 of the Act, D
the petitioner proved to be unsuccessful, at least up to
the High Court stage. In the criminal proceedings, the
petitioner was unsuccessful right up to this Court. In the
circumstances, the plea urged on behalf of the petitioner
relating to special equities cannot be accepted, E
particularly, in view of the fact that such a point had not
been raised earlier. Besides, partial Award has been
made by the Arbitral Tribunal which has not been
questioned or challenged by the petitioner and
respondent No.1 is entitled to the amount awarded in the F
partial Award. [Para 10-11] [462-G-H; 463-A-C]

CIVIL APP~LLATE JURISDICTION : SLP (Civil) No.
24746 of 2010.
From the Judgment & Order dated 20.08.2010 of the High G
Court of Madhya Pradesh, Principal Seat at Jabalpur in
Abribtration Appeal No. 8 of 2010.

Gagan Gupta for the Petitioner.
H
458 SUPREME COURT REPORTS [2012] 1 S.C.R.

A Meenakshi Arora for the Respondents.

The Judgment of the Court was delivered by

ALTAMAS KABIR, J. 1. The Special Leave Petition and
the application filed on behalf of the Respondents for early
8 hearing and disposal of the Special Leave Petition were taken
up together for consideration. The facts on which the Special
Leave Petition is based, are set out hereinbelow.

2. By its letter of acceptance No.NHAl/PH 11/NHDP/ADB/
C GM-11/NS1/746 dated 30th December, 2005, the National
Highways Authority of India, hereinafter referred to as 'NHAI',
awarded a contract to the Respondent, SSANG YONG
Engineering & Construction Co. Ltd., for the National Highways
Sector II Project, Package-ADB-11/C-8, which involved the four
D laning of Jhansi-Lakhadon sector KM 297 to KM 351 of
National Highway 26 in the State of Madhya Pradesh. The total
contract amount for the aforesaid project was more than 750
crores. An agreement was entered into by the NHAI with the
Petitioner on 13th August, 2006. Clause 27 of the Agreement
E incorporated an arbitration clause stipulating that all disputes
and differences arising out of or in connection with the
Agreement dated 13th August, 2006, would be referred to
arbitration to be conducted in English in Singapore in
accordance with the Singapore International Arbitration Centre
F (SIAC) Rules. For the purpose of reference, Clause 27 of the
Agreement relating to arbitration is extracted hereinbelow :

"27. Arbitration
27.1 All disputes, differences arising out of or in connection
G with the Agreement shall be referred to arbitration. The
arbitration proceedings shall be conducted in English in
Singapore in accordance with the Ssangyong International
Arbitration Centre (SIAC) Rules as in force at the time of
signing of this Agreement. The arbitration shall be final and
H binding.
YOGRAJ INFRAS. LTD. v. SSANG YONG ENG. & 459
CONSTRN. CO. LTD. & ANR. [ALTAMAS KABIR, J.]
27.2 The arbitration shall take place in Singapore and be A
conducted in English language.
27 .3 None of the Party shall be entitled to suspend the
performance of the Agreement merely by reason of a
dispute and/or a dispute referred to arbitration,." B
3. According to Clause 1 of the Agreement read with the
Appendix thereof, the Petitioner was to provide all adequate
manpower, material, plant, machinery, construction equipment
and all other resources, including finance, which would be
required to perform the work Bank Guarantee was furnished C
by the Petitioner on 31st October, 2006, whereby the Bank
undertook to pay to the Respondent on its first written demand
and without cavil or argument any sum or sums within the limits
of Rs. 6,05,00,000/-, without there being need to prove or give
any reasons for the demand for the said sum. The guarantor D
also waived the necessity of the Respondent Company making
a demand for the debt to the contractor/petitioner before
presenting the demand. The guarantor also agreed that no
change or addition or other modification of the terms of the
contract or of the work to be performed thereunder or any of E
the contract documents, which may be made between the
Respondent and the Petitioner, would release the Bank from
its liability under the Agreement. Similarly, three Bank
Guarantees of Rs. 1 crore each and one Bank Guarantee for
Rs. 3 crores were also furnished to secure mobilization F
advance.
4. Disputes and differences arose between the parties
relating to the performance of the Petitioner in completing the
work contracted as per the Agreement dated 13th August, G
2006. Consequently, since the Petitioner failed to carry out the
works entrusted and had allegedly been over-paid to the tune
of Rs. 78 crores, the Respondent Company on 22nd
September, 2009, terminated th~ contract under Clause 23.2
of the Agreement dated 13th August, 2006 and invoked the H
460 SUPREME COURT REPORTS [2012] 1 S.C.R.

A Bank Guarantees referred to hereinbefore vide its letters dated
25th January, 2010, 27th January, 2010 and 5th March, 2010.
The Respondent No.1 also made a subsequent demand for
encashment of the Bank Guarantees by its letter dated 6th May,
2010.
B
5. In the Special Leave Petition, the Petitioner has sought
for an order of injunction against the Respondent No. 1 on the
basis of alleged fraud on the part of the said Respondent. The
Petitioner also filed a criminal complaint against the
C Respondent No.1 alleging fraud and making the same
allegations which have been made by it in the present Special
Leave Petition. The learned Magistrate took cognizance on the
said complaint and issued process on 5th February, 2010.

6. Aggrieved thereby, the Respondent No.1 challenged the
D said order of the Magistrate dated 5th February, 2010, taking
cognizance of the criminal complaint alleging fraud, by filing a
petition under Section 482 of the Code of Criminal Procedure
in the Jabalpur Bench of the Madhya Pradesh High Court, for
quashing of the cognizanc;e taken by the learned Magistrate.
E The High Court by its order dated 13th October, 2010, quashed
the criminal proceedings commenced against the Respondent
No.1. Challenging the said order of the High Court, the
Petitioner filed Special Leave Petition (Crl) No. Crl. M.P. 2872
of 2011, which was dismissed by this Court on 18th February,
F 2011. On account of the above, an application for early hearing
and disposal of the Special Leave Petition was filed on behalf
of the Respondent No.1 urging that since the allegation of fraud
had already been decided by this Court, the present Special
Leave Petition could be finally disposed of in view of order
G passed by this Court in Special Leave Petition (Crl) No. Crl.
M.P. 2872 of 2011. It is in this background that the present I.A.
has been filed for early hearing and disposal of the Special
Leave Petition.
H 7. Appearing for the Special Leave Petitioner, who is the
YOGRAJ INFRAS. LTD. v. SSANG YONG ENG. & 461
CONSTRN. CO. LTD. & ANR. [ALTAMAS KABIR, J.]
opposite party in the Interlocutory Application filed on behalf of A
the Respondent No.1, Mr. Jaideep Gupta, learned Senior
Advocate, contended that the stay order passed in these
proceedings was liable to be continued in view of the special
equities in this case. He submitted that the Petitioner Company
had invested large sums cf money in the project and upon B
termination of the contract, the dues of either party were yet to
be decided and the same could only be done at the time of
the final Award. Mr. Gupta submitted that his main emphasis
in the Special Leave Petition was with regard to the special
equities which existed and the order of stay granted by this C
Court restraining the Respondent No.1 Company from invoking
the Bank Guarantees was liable to be continued till the passing
of the final Award by the learned Arbitrator.

8. Ms. Meenakshi Arora, learned Advocate, who appeared D
for the Respondent Company, submitted that the prayer made
on behalf of the Petitioner in the Section 9 application before
the District Court, Narsinghpur, seeking injunction against the
Respondent No.1 from invoking the Bank Guarantees, was
dismissed by the District Judge on 4th March, 2010, and the E
Appeal therefrom was dismissed by the Jabalpur Bench of the
Madhya Pradesh High Court on 20th August, 2010. However,
this Court had stayed the invocation of the Bank Guarantees
by the Respondent No.1 Company by an interim order dated
31st August, 2010. Ms. Arora submitted that once the F
cognizance taken by the magistrate on the petitioner's criminal
complaint alleging fraud on the part of the Respondent No.1 was
quashed by the Jabalpur Bench of the Madhya Pradesh High
Court by its order dated 13th October, 2010, and even the
Special Leave Petition preferred therefrom was dismissed by G
this Court on 18th February, 2011, the very basis for seeking
injunction in the, proceedings under Section 9 of the Arbitration
and Conciliation Act, 19,96, stood removed. Ms. Arora
submitted thatin addition to the above, a partial Award had
been made by the Arbitral Tribunal in Singapore on 30th June, H
.4£2 SUPREME. COURT REPORTS [2012j 1 S,CR.

A 2011; in favour of the Respondent No, 1. Ms. Arora. submitted
that in terms of the agreement between the parties, ttie.
Respondent Nq.1 Company had made huge cash advan~ to
the PetitiQner for completion of the project, but the sarne !}ad
not been fully repaid by the Petition13r and tha,tas a result, tne
B Respondent No.1 should be perm,itted to invoke the Blink
Guarant~s to .re!llizethe outstanding amounts. According to
Ms. Aror!l, the dues of the Respon9ent No, 1 Company. were
far beyond those claimed by the Petition~. Ms. Arora submitted
that since the partial AY.'.iird had not been ctiallenged by the
c Petiijoner, the e~ecution thereof could not be stayed ancj the
R~spondentNo.1 was.therefore, entitled to fE!G<>ver the amount
under the partic:i! AWclrd, According to Ms. Arora, the plea 4lkef!
by the Petitioner in the criminal <:omplaint and the present
Special Leave Petition was the same and since the allegation
o of fraud against the Respondent No. 1 by the Petitioner has been
negated, the interim order restraining the Resj)(lndentNo.1 from
invoking the Bank Guarantees was Hable.to be vacated~
.;

9. Ms. Arora st,1l:>mitted thc:itsince payment u.nder a Bank
E Guarantee can norm.ally be stopped only on t\11() grounds ancj
on no other, viz., on grounds of fraud and sMCial equtty, ar;id
the groµnd of fraud having been rejected upto this Court, fll~
only other ground available to the Petitioner to stop the
invocation of the 8,ank Guarantees ~as on aCCQIJDtof speeial
F equities ancj in tile instal'\t case the Petit;c;>ner haa faile(:! ta,
in<!icate any such special equity which l"!ltitlei;I the Petitione.r
to. an order of restraint against the Resppndent No..J fr;om
invoking the Bank Guarantees in qi;iestion, , , . , . ,..,
'-1 -, - "1
10. Having heard leame.d counsel for th.e partie~. we are
G inclined to accept Ms. Meenakshi Arora's submissions th<Jt
sincEl the Petitioner's application under Section 9 of the
Arbitration and Conciliation Act, 1996, was based mainly on
allegations of fraud, which have been rejected. tnere waii no
foundation for the, stay order pasiie~ ir the~e pr9ceedings to
' H continue. We cannot lose sight of the fact that both in the
YOGRAJ INFRAS. t.ro: v. SSANG VONG ENG. & 463
CONSTRN. CO. LTD. & ANR. [ALTAMAS KABIR, J.]
criminal proceedings as also in the proceedings under Section ·A
9 of the aforesaid Act, the Petitioner proved to be unsuccessful,
at least upto the High Court stage. In the criminal proceedings,
the Petitioner was unsuccessful right upto this Court. In the
aforesaid circumstances, we. are unable to accept the
submissions relatingto special equities urged by Mr. Jaideep B
Gupta; l>articulatty In view of the fact that'such "a point had not
been raised earlier.
t • ~~ ._ - ~ ~ --J .

. '· J1 .1ru1ddition tp .the above, we also have to keep in mind
tl'le fact that a partial Award has be.en made.by the Arbitral ·C
Trib®al whichtiasnot been questioned or challenged by the
Petitioner and the Respondent No.1 is entitled to the amount
awardedin. the partialAward ..
\)·,'"' . - . -' - ' ' ~ ,, .
.: . -1.2. Accordingly, we are not inclinE!d to disturb the order
~f the tligh Court and the Special Leaye PetitionJs,Jherefore, D
dismiss.edwith.postof.R.~. 1 lakh to be paid by the Retitioner
Company,\Q the Supreme Court Legal Services Committee.
TtieJnterlocu.tOfYApplication i!> also.disposed of by this order.
;.::\f'.t~'" -~--~_ 1
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