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SC dismisses NHAI's plea

delhi Updated: May 24, 2009 14:46 IST
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The Supreme Court has dismissed a petition filed by the National Highway Authority of India seeking a direction to State Bank of India to release the bank guarantee of around Rs 6.76 crore furnished by construction major Larsen & Toubro Ltd.

L&T had furnished the bank guarantee as discretionary advance during execution of work on a Rs 258-crore contract for widening of four to six laning, including strengthening of the existing two-lane carriageway, of the NH-60.

A bench headed by Justice R V Raveendran recently refused to interfere with the Orissa High Court order that had in effect restrained NHAI from encashing the bank guarantee. The high court had ordered that in case the bank guarantee was encashed, the same shall be kept in a fixed deposit in SBI.

The high court had also directed that the utilisation of the amount would be subject to the result of the award passed by the arbitral tribunal.

The tribunal, which is looking into various disputes rising out of the contract between L&T and NHAI, has reserved its judgment.

The NHAI in its appeal submitted that the high court had restrained the authority from utilising its own money, which was ultimately to be used for public purpose.

The impugned order was erroneous as it limited its right to utilise the funds, it said, adding, the bank guarantees were an independent contract between the beneficiary and the bank and the same was independent of claim or counter-claim arising out of the contract between the parties.

According to NHAI's plea, the bank guarantees were unconditional and irrevocable and the bank was not concerned with any inter se disputes between NHAI and L&T.

The effect of depositing the amount of bank guarantee in fixed deposit would restrain NHAI from use of funds for various other projects, the petition said.

NHAI had awarded the contract for NH-60 to L&T in March 2001.

During the execution of work, L&T had raised a dispute and sought to resolve the dispute through arbitration.

While NHAI had allowed the company to retain excess payment made during the execution of work in the interest of timely completion of the project, L&T had furnished bank guarantee of around Rs 6.76 crore.

While the arbitral tribunal had restrained NHAI from encashing the bank guarantees, the lower court had set aside the tribunal's interim order.

The high court, on appeal by L&T, had confirmed the district judge's order but directed NHAI that in the event the bank guarantee was encashed, the amount shall be kept in fixed deposits in SBI for three months or till the pronouncement of the award by the tribunal.