CASE TITLE : M/S BANSAL INFRA PROJECTS PVT. LTD., BOLANGIR Vs.
M/S JINDAL STEEL & POWER LTD. AND OTHERS
CASE NO : W.P.(C) No.11848 of 2024
DATE OF JUDGMENT : August 20, 2024

The case involved M/s Bansal Infra Projects Pvt. Ltd. (the petitioner) and M/s Jindal Steel & Power Ltd. (JSPL) (the Opposite Party). A work order dated 24.01.2022, was issued to the petitioner for constructing 400 flats at JSPL’s site. The contract value was approximately 43.99 crores, with an advance of 3.73 crores secured by a bank guarantee. Issues arose as JSPL delayed supplying construction materials and payments for running bills, which adversely affected the petitioner’s performance. Allegedly, due to failure by JSPL, including delayed supply of materials, withheld payments, and unilateral reduction of work scope, the petitioner faced financial difficulties. JSPL, citing non-performance, issued notice to terminate the contract and invoke the bank guarantee, leading to the petitioner seeking judicial intervention under Section 9 of the Arbitration and Conciliation Act, 1996 along with applications under Order 39 Rule 1 & 2 and 3 for granting ex-parte injunction to prohibit the Opposite Party from encashing the bank guarantee. The Senior Civil Judge (Commercial Court) rejected the petitioner’s plea for an ex-parte interim injunction against encashment of the bank guarantee.

The petitioner argued that JSPL had failed to fulfill its reciprocal obligations under the contract, causing delays and financial losses. It contended that invoking the bank guarantee was unjustified and arbitrary, as pending dues far exceeded the amount of the bank guarantee furnished by it to secure the advance given by JSPL. The petitioner relied on precedents to argue for interim relief to prevent irreparable harm.

The Opposite Parties countered that the bank guarantee was an independent contract between the bank and JSPL, enforceable on demand irrespective of disputes under the main contract. They argued that the writ petition challenging the order passed by the Commercial Court was not maintainable as the said order passed by the Commercial Court is appealable under section 37 of the Arbitration and Conciliation Act, and judicial interference in bank guarantee invocation was permissible only under exceptional circumstances, such as fraud or irretrievable harm, which were not present.

The judgment explored the jurisdiction of Commercial Courts under the Commercial Courts Act, 2015, and clarified those procedural applications, such as those under Order 39, Rules 1 & 2 and 3 of the CPC, must be considered as part of the main proceedings under Section 9 of the Arbitration Act.

The Court began its analysis with the issue of bank guarantee invocation, emphasizing the independent and autonomous nature of such guarantees as financial instruments pivotal to commercial confidence. Relying on Hindustan Steelworks Construction Ltd. v. Tarapore & Co. and SBI v. Mula Sahakari Sakhar Karkhana Ltd., the Court reaffirmed that judicial interference in the encashment of a bank guarantee is permissible only under exceptional circumstances, such as egregious fraud or irretrievable harm, special equities in favour of the person seeking injunction also in case of improper invocation when it is not in accordance with the agreed stipulations. The Court observed that there are special equities in favour of the Petitioner and if the Opposite Parties are permitted to encash the BG, it may cause irretrievable injustice to the Petitioner Company. Moreover, the Court underscored that the petitioner’s allegations, including claims of delayed payments and non-fulfillment of contractual obligations, were purely contractual disputes, which can be appropriately resolved through arbitration rather than judicial intervention.

The Court also examined the precedents cited by JSPL, including Vinitec Electronics Pvt. Ltd. v. HCL Infosystems Ltd., which upheld the beneficiary’s right to invoke an unconditional Bank Guarantee. Referring to National Highways Authority of India v. Ganga Enterprises, the Court noted that any deviation from the terms of the Bank Guarantee would render its invocation invalid.

It was observed that, interlocutory order passed in a section 9 application moved before the District Judge/ Commercial Court under the Act, 1996, rejecting the prayer of the Applicant to exempt notice to the Opposite Party and pass an ex parte ad interim injunction is not an appealable order and the party aggrieved has to approach the writ court under Article 227 of the Constitution of India.

The judgment reinforces the autonomy of bank guarantees in commercial transactions, signaling a pro-business stance in favor of contractual sanctity. It underscores that judicial intervention in Bank Guarantee encashment is an exception rather than a norm, aligning with global commercial practices. Socio-economically, this decision provides clarity on the enforceability of Bank Guarantees, promoting confidence among financial institutions and corporate entities. Legally, it delineates the scope of writ jurisdiction in commercial disputes, reaffirming the primacy of arbitration as a dispute resolution mechanism.

CASE TITLE : THE SR. BRANCH MANAGER, THE NATIONAL SMALL INDUSTRIES
CORPORATION LTD., BHUBANESWAR AND ANOTHER V. THE DEPUTY CHIEF LABOUR
COMMISSIONER (CENTRAL), BHUBANESWAR-CUM-THE
APPELLATE AUTHORITY AND OTHERS
CASE NO : W.P.(C) No.20160 of 2019
DATE OF JUDGMENT : March 15, 2024

The Petitioners in this case are the employer, National Small Industries Corporation Ltd., Bhubaneswar, who challenged the orders of the Controlling Authority and the Appellate Authority under the Payment of Gratuity Act, 1972 (“P.G. Act”). These orders directed the petitioners to release gratuity of 10,00,000 with interest to Opposite Party No. 3, an ex-employee. Opposite Party No. 3 joined the Corporation in 1981 and retired in 2016. Before retirement, a disciplinary proceeding was initiated against him due to alleged financial irregularities involving 173.50 crores. Despite being suspended and charged under the Corporation Rules, Opposite Party No. 3 opposed the inquiry proceedings on the ground that the same is not permissible after retirement and failed to cooperate, resulting in an ex-parte inquiry report concluding misconduct. Subsequently, the disciplinary authority terminated his services and forfeited his gratuity and other retirement benefits.

The petitioners contended that the forfeiture of gratuity was justified under Section 4(6) of the P.G. Act due to the employee’s misconduct and the financial loss caused to the organization. They argued that under Rule 3(3) of the NSIC (Control and Appeal) Rules, 1968, an employee is deemed to continue in service if disciplinary proceedings were initiated prior to retirement. Citing precedents like Chairman-cum-Managing Director, Mahanadi Coalfields Ltd. v. Rabindranath Choubey, they claimed the right to withhold gratuity during pending disciplinary proceedings. Additionally, they emphasized the principles laid out in Allahabad Bank v. Deepak Kumar Bhola, where acts involving moral turpitude warranted forfeiture. They also argued procedural fairness, claiming sufficient opportunities were provided to the employee to defend himself, and highlighted that the appellate authority’s decision under the P.G. Act, 1972 was influenced by outdated precedents.

Opposite Party No. 3 refuted the allegations of financial misconduct and emphasized that he was not convicted in the related criminal case. He stressed that forfeiture of gratuity is permissible only if misconduct constitutes an offense involving moral turpitude and is accompanied by a court conviction. He argued that the employer failed to notify him formally about the forfeiture, violating natural justice principles under Rule 8(ii) of the Payment of Gratuity (Central) Rules, 1972. Moreover, he highlighted that the disciplinary inquiry did not establish a direct quantification of financial loss attributable to him, making the forfeiture arbitrary.

The court examined the interplay between the provisions of the P.G. Act, 1972, and the NSIC (C&A) Rules, 1968. It acknowledged that, the Petitioners-Employer had a right to continue with the disciplinary proceeding instituted before retirement of the Opposite Party No.3 so also to impose the major penalty of dismissal with retrospective effect i.e. the date when the Opposite Party No.3 was superannuated, and legality of punishment imposed is subject to judicial scrutiny.
However, it was held that, the P.G. Act is a comprehensive code governing gratuity, and its provisions override inconsistent rules. The Court highlighted procedural lapses in the employer’s approach, particularly the absence of formal communication about the forfeiture of gratuity to Opposite Party No. 3.

The Court also delved into the nature of moral turpitude, noting that while the allegations against the Opposite Party No.3 were serious, there was no conviction in criminal proceedings and the inquiry failed to establish direct financial loss attributable solely to him. It also observed that, the requirements of the statute is not the proof of misconduct of acts involving moral turpitude, but the acts should constitute an offence involving moral turpitude and such offence should be duly established in a Court of law. It is not for the Petitioners-Employer to decide whether the offence has been committed amounting to involving moral turpitude.

Further, the Court discussed the evolving jurisprudence on gratuity forfeiture, distinguishing between procedural non-compliance and substantive grounds, referencing the overruling of Jaswant Singh Gill in Rabindranath Choubey.
This judgment underscores the supremacy of the P.G. Act in disputes involving gratuity and highlights the procedural safeguards mandated under it. It reinforces that forfeiture of gratuity cannot be arbitrary and must align with statutory provisions and principles of natural justice. Socio-economically, this ruling protects employees’ post-retirement entitlements from being forfeited without due process, offering reassurance to retirees about the inviolability of gratuity. Legally, it clarifies the procedural rigor required in employer-employee disputes under the P.G. Act and delineates the boundaries of employers’ authority in forfeiture cases, thus contributing to labor law jurisprudence.