Sapphire Media Services vs Delhi Transport Infrastructure Development Corporation Ltd. & Ors.

Deals & Matter

Environmental Law

Sapphire Media Services vs Delhi Transport Infrastructure Development Corporation Ltd. & Ors.

The case titled Sapphire Media Services vs Delhi Transport Infrastructure Development Corporation Ltd. & Ors., O.M.P. (I) (COMM.) 349/2022, was heard by the Delhi High Court on 29 November 2022 before Hon’ble Justice Sachin Datta. The petition was filed under Section 9 of the Arbitration and Conciliation Act, 1996, seeking interim protection against the invocation and realization of bank guarantees issued in favor of the respondent, DTIDC, under a concession agreement that had been held void due to legal infirmities. The matter centers around a public private partnership for maintenance of bus queue shelters and related advertising rights, which was later invalidated for being contrary to statutory policy.

Issue Before the Court

The key issue was whether DTIDC could invoke and realize the performance bank guarantees given by Sapphire Media Services under a Concession Agreement that was declared ultra vires and void ab initio. More specifically, the Court had to determine if such invocation constituted fraud and caused irretrievable injustice to the petitioner, thereby justifying interim protection under Section 9 of the Arbitration Act.

Background Facts

Project Details

Tender No: 2019_DTIDC_180620_1
Scope: Uplifting, cleaning, and maintaining 96 Stainless Steel Bus Queue Shelters
Location: Between Delhi Gate and Ambedkar Road
Exchange: Advertisement rights on shelters

Financial Commitments

Performance Bank Guarantees: ₹1.71 crores
Earnest Money Deposit: ₹32.5 lakhs
Letter of Acceptance: 27.11.2019
Concession Agreement: 06.12.2019

Legal Challenge

In an earlier judgment dated 04.07.2022, in W.P. (C) 2515/2021 and W.P. (C) 11574/2021, the Delhi High Court ruled that DTIDC had no authority to issue the tender in question. The court held that the entire tendering process was contrary to the Outdoor Advertising Policy, 2017 framed by the Municipal Corporation of Delhi (MCD).

The MCD had warned DTIDC in letters dated 12.06.2019 and 04.12.2019 that the tender could not be issued without prior consultation or approval of the Commissioner, MCD. Despite this, DTIDC proceeded to finalize and execute the concession agreement.

Deals & Matter Corner

The Delhi High Court restrained DTIDC from

Delhi High Court appeal challenges the disputed

Articles & Publications

The Division Bench of the Delhi High

Varun Singh, Founder and Managing Partner, Foresight

Blogs

Section 27 of the Arbitration and Conciliation

The power of a governmental authority or

Validity of Contract Nullified

Since the earlier High Court judgment had clearly ruled that DTIDC lacked authority to issue the tender, the very basis or “substratum” of the Concession Agreement had disappeared. The petitioner contended that the agreement was void ab initio.

Fraud and Irreparable Harm

Invoking the bank guarantees, when the contract itself has been held invalid by a competent court, was argued to be a fraudulent act. The petitioner stressed that allowing the respondents to realize the bank guarantees would result in irretrievable injustice, particularly when the performance of the contract had been halted due to judicial findings.

Compliance and Good Faith

The petitioner conceded that it owed certain payments to DTIDC for the period up to 04.07.2022, i.e., till the date of the judgment that invalidated the contract. They undertook to file an affidavit within two days disclosing all payments made and any outstanding dues, thereby demonstrating good faith and willingness to comply with past obligations.

Relief Sought

Restrain DTIDC from invoking or realizing bank guarantees totaling ₹1.71 crores.
If already invoked, prevent the bank (Respondent No. 2) from disbursing the funds.
If funds had already been released, restrain DTIDC from utilizing them.
Seek deposit of ₹32.5 lakhs earnest money into a fixed deposit account.
Seek a stay on the DTIDC letter dated 27.07.2022 demanding ₹18,84,313 as license fees.

Respondent’s Position (DTIDC)

The detailed reply from DTIDC was not recorded in the order. However, it was noted that DTIDC had invoked the performance bank guarantees a day before the hearing, indicating a sudden attempt to realize the money despite the background of legal invalidity. No justification for the invocation was presented during the proceedings.

Court's Observations

The Hon’ble Court took note of the following:

Legal Infirmity of Agreement: The Court referred to its previous judgment of 04.07.2022, which had clearly stated that DTIDC was not legally competent to issue the tender or enter into the concession agreement. This judgment had become the foundation of the petitioner’s case.
Risk of Injustice: The Court acknowledged that permitting encashment of the bank guarantees under such circumstances would indeed result in serious prejudice to the petitioner. The Court agreed that fraud and irretrievable injustice could be grounds to restrain invocation of bank guarantees, as per established legal principles.
Petitioner’s Admission: The petitioner’s open admission of liability for dues up to the cutoff date, and its willingness to file a detailed affidavit on the matter, was taken as a positive and cooperative gesture.

Court's Observations

The Hon’ble Court took note of the following:

Legal Infirmity of Agreement: The Court referred to its previous judgment of 04.07.2022, which had clearly stated that DTIDC was not legally competent to issue the tender or enter into the concession agreement. This judgment had become the foundation of the petitioner’s case.
Risk of Injustice: The Court acknowledged that permitting encashment of the bank guarantees under such circumstances would indeed result in serious prejudice to the petitioner. The Court agreed that fraud and irretrievable injustice could be grounds to restrain invocation of bank guarantees, as per established legal principles.
Petitioner’s Admission: The petitioner’s open admission of liability for dues up to the cutoff date, and its willingness to file a detailed affidavit on the matter, was taken as a positive and cooperative gesture.

Deals and Matter