TMI Blog1997 (5) TMI 421X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant the Iight to encash the bank guarantee. If the High Court had taken the trouble to see the law on the point it would have been clear that in encashment of bank guarantee the applicability of the principle of undue enrichment has no application. From the facts stated hereinabove it appears to us that the respondent bank has not shown professional efficiency, to say the least, and has acted in a partisan manner with a view to help and assist respondent no. 1. At the time when there was no restraint order from any Court, the bank was under a legal and moral obligation to honour its commitments. It, however, failed to do so. It appears that the bank deliberately draged its feet so as to enable respondent no.1 to secure favourable order of injunction from the Court. Such conduct of a bank is difficult to appreciate we do not wish to say anything more but it may feel that it will be prejudicial in the event of the appellant taking action against it. Appeal is allowed. The judgment and order of the Allahabad High Court set aside and the order of the trial court dismissing the injunction application is restored. - C.A. 3376 OF 1997 - - - Dated:- 7-5-1997 - Mr. K. S. Pari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purchasers shall be the sole judge of and as to whether the sellers have committed breach(es) of any of the terms and conditions of the said agreement and secondly that the right of the purchasers to recover from the guarantor any amount due to the purchasers shall not be affected or suspended by reasons of the fact that any dispute or disputes have been raised by the sellers with regard to their Liability or that proceedings are pending before any Tribunal arbitrator(s) or Court with regard to or in connection therewith, and thirdly that the guarantor shall immediately pay the aforesaid guaranteed amount on demand and it shall not be open to the guarantor to know the reasons of or to investigate or to go into the merit of the demand or to question or to challenge the demand or to know any fact affecting the demand, and lastly that it shall not be open to the guarantor to require the proof of the liability of the seller to pay the amount before paying the aforesaid guaranteed amount to the purchasers The other bank guarantee no.40/47 was originally issued for a sum of Rs.51,70,000/- for securing advance payment. The agreement contemplated the liability being gradually red ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the case of the appellant that it had to make direct purchases of many parts from other sources as the respondent no.1 had failed to supply the equipment Ultimately by letter dated 21 st November, 1995 written to respondent no.2, the appellant invoked the bank guarantee. The material portion of this letter was as follows: We wish to inform you that M/s Prem Heavy Engineering Works (P) Ltd. Ram Mill, Delhi Road, Meerut have failed to fulfill the condition of our agreement dated 27.7.1994 in so far as timely supply of the machinery and equipment under order with them . As per clause 14 of the supply agreement M/s Prem Heavy Engineering Works (P) Ltd., Meerut has failed to deliver the equipments and its commissioning within the scheduled time frame. Now we hereby invoke the aforesaid guarantee for Rs.26,l5,000/-(Rupees twenty six lacs fifteen thousand only) 5% of the contract value and enclose here with the original guarantee for your record. Kindly hand over the Demand Draft in our favour payable at Najibabad, Distt. Bijnor, Uttar Pradesh towards the invocation amount. As on 28th November 1995 respondent no.1 had already obtained and ex par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge of the Allahabad High Court took up the revision petition and disposed it of on the same day and after setting aside the order dated 20th August, 1996 it remanded the matter back to the trial court for a fresh decision but, at the same time, directed that till the disposal of injunction application the bank guarantees in question shall not be invoked or encashed. The trial court was directed to hear the parties within fifteen days of the receipt of the order and to dispose of the injunction application within fifteen days thereafter. Needless to date, due to dilatory tactics adopted by respondent no1 which is evident from the documents available on the record of this As per clause 14 of the supply agreement M/s Prem Heavy Engineering Works (P) Ltd., Meerut has failed to deliver the equipments and its commissioning within the scheduled time frame. Now we hereby invoke the aforesaid guarantee for Rs.26,l5,000/-(Rupees twenty six lacs fifteen thousand only) 5% of the contract value and enclose here with the original guarantee for your record. Kindly hand over the Demand Draft in our favour payable at Najibabad, Distt. Bijnor, Uttar Pradesh towards the invocation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court challenging the order dated 20th August, 1996 of the trial court. single judge of the Allahabad High Court took up the revision petition and disposed it of on the same day and after setting aside the order dated 20th August, 1996 it remanded three matter back to the trial court for a fresh decision but, at the same time, directed that till the disposal of injunction application the bank guarantees in question shall not be invoked or encashed. The trial court was directed to hear the parties within fifteen days of the receipt of the order and to dispose of the injunction application within fifteen days thereafter. Needless to cardilatory tactics adopted by respondent no1 which is evident from the documents available on the record of this case, the said injunction application have not been disposed of the till with the result that the injunction granted by the single judge of the High court vide order dated 10th September, 1996 still continues. While allowing the civil revision the single judge in his judgment did not think it necessary to refer to the judicial decisions which were cited before him. The court observed that reference to the same was not necessary because the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute raised by its customer. The very purpose of giving such a bank a bank guarantee would otherwise be defeated. The courts should, therefore, be slow in granting an injunction to restrain the realization of such a bank guarantee. The courts have carved out only two exceptions. A fraud in connection with such a bank guarantee would vitiate the very foundation with such a bank guarantee would vitiate the very foundation of such a bank guarantee. Hence if there is such a fraud of which the beneficiary seeks to take the advantage, he can be restrained from doing so. The second exception relates to case where allowing the encashment of an unconditional bank guarantee would result in irretrievable harm or injustice to one of the parties concerned. Since in most cases payment of money under such a bank guarantee would adversely affect the bank and its customer at whose instance the guarantee is given, the harm or injustice contemplated under this head must be of such an exceptional and irretrievable nature as would override the terms of the guarantee and the adverse effect of such an injunction of the guarantee and the adverse effect of such an injunction on commercial dealings in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reasons of or to investigate the merits of the demand or to question or to challenge the demand or to know any fact affecting the demand and lastly it was not open to the bank to require the proof of the liability of respondent No.1 to pay the amount before paying the aforesaid guaranteed amount to the appellant. The letter of invocation issued by the appellant demanding the payment of Rs.26,15000/- was in accordance with the terms of bank guarantee No. 40/51 and the bank was, therefore, under an obligation to honour its undertaking and to make the payment . It, however, chose not to fulfil its obligation. If the bank could not in law avoid the payment, as the demand had been made in terms of the banjk guarantee, as has been done in the present case, then the court ought not to have issued an injunction which had the effect of restraining the bank from fulfilling its contractual obligation in terms of the bank guarantee. An injunction of the court ought not to be an instrument which is used in nullifying the terms of a contrant, agreement or undertaking which is used in nullifying the terms of contract, agreement or undertaking which is lawfully enforceable. In its aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llers shall furnish a fresh or renewed guarantee on the Purchaser s proforma for such further period as the purchaser s may intimate failing which the guarantor hall pay to the purchaser s a sum not exceeding Rs. 51,70,000/-(Rupees Fifty one lacs seventy thousand only) or the residual amount of balance unadjusted advance left after proportionate adjustment in accordance with clause 1 above as the purchaser may demand. No plea was taken before the courts below and no document has been shown to us by the respondents, which can prima facia indicate that the full amount to us by the respondents, which can prima facie indicate that the full amount of advance had been adjusted under Clause 13 of the main contrant between the appellant and the defendant no.1 According to the appellants, the original guarantee was for Rs. 51,70,000/- but the same, after adjustment of the advance, in terms of clause 13 of the main agreement, stood reduced to Rs.33,00,000/- This amount was still outstanding and, therefore, the bank guarantee had not come to an end and was rightly invoked. Coming to the allegation of fraud, it is an admitted fact that in the plant itself, there was no such allegation w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k guarantee the applicability of the principle of undue enrichment has no application. We are constrained to make these observation with regard to the manner in which the High Court had dealt with this case because this is not an isolated cade where the courts, while disobeying or not complying with the law laid down by this Court , have at time been liberal in granting injunction restraining encashment of bank guarantees. It is unfortunate, that notwithstanding the authoritative the pronouncements of this Court, the High Courts and the courts subordinate thereto, still seem intent on affording to this Court innumerable opportunities for dealing with this area of law, thought by this Court to be well settled. When a position, in law, is well settled as a result of judicial pronouncement of this Court, it would amount to judicial impropriety to say the least, for the subordinate courts including the High Courts to ignore the settled decisions and then to pass a judicial order which is clearly contrary to the seeded legal position. Such judicial adventurism cannot be permitted and we strongly deprecate the tendency of the subordinate courts in not applying the settled princi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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