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Delhi HC directs Reliance Communications to furnish 10 Crore bank guarantee

Delhi HC directs Reliance Communications to furnish 10 Crore bank guarantee

Ashutosh Gambhir

The Delhi High Court yesterday dismissed the appeal filed by Reliance Communications Limited against an order of the arbitral tribunal which had directed it to furnish a bank guarantee of Rs. 10 crore.

Reliance Communications and Bharti Infratel Limited had entered into a Master Service Agreement in 2010. However, the former exited from the sites of Bharti Infratel in 2015 citing expiration of its 2G licenses, thereby breaking the agreement.

Bharti Infratel demanded an exit amount close to 40 crores, which led to the arbitration battle between the companies. The arbitral tribunal passed an award in favour of Bharti Infratel in October last year, against which Reliance filed an appeal in the High Court.

Appearing for Reliance Communications, Senior Advocate Ravindra Shrivastava argued that Reliance was holding a 2G license under the Telegraphs Act, so it needed infrastructure for the use of such license, hence it entered into an agreement with Bharti.

He further stated that the Supreme Court delinked the spectrum and license, leading to the termination of the Master Service Agreement by Reliance on account of ‘change of law’ and by ‘efflux of time’, as the licenses granted to it even otherwise were to expire in December 2015.

It was also contended that the amount demanded by Bharti Infratel was speculative, as the damages are yet to be established, proved or quantified.

The Single Judge Bench of Justice Yogesh Khanna stated at the outset that the conduct of Reliance was not above board.

“Despite being not granted any stay against the impugned order the petitioner failed to comply with the directions passed by the impugned order and failed to furnish bank guarantee of 10 Crores of a nationalised bank for a period of one year within two weeks from the date of the order.” 

As per the agreement, the Court noted, disputes regarding invoices were to be raised within fifteen days of receipt, failing which such invoices were deemed to have been admitted and were to be paid for by the petitioner. Since invoices amounting to Rs. 39 crore were generated by the respondent, and the petitioner failed to raise objections to the same within the time frame, the Court held that the petitioner cannot allege that the claims by respondent are wholly speculative.

The Court also observed that clause 18 of the agreement, which defines change of law, was intentionally kept blank to mean the contract could not be terminated on account of change of law.

In this light, Justice Khanna agreed with the view of the arbitral tribunal to give some protection to the respondent pending the disposal of the arbitral proceedings.

Thus, the Court refused to interfere with the order of the arbitral tribunal directing Reliance to deposit bank guarantees worth 20% of the total dues (amounting to Rs. 10 crore), and held that the amount claimed by the Bharti Infratel was not speculative and was rather based upon the terms of the contract.

Senior Advocate Gopal Jain, who was by instructed by Chandhok & Associates‘ lawyers Karan Chandhiok, Vikram Sobti and Mehul Parti, appeared for Bharti Infratel.

Read Judgement:


Image taken from here.