TMI Blog1990 (5) TMI 249X X X X Extracts X X X X X X X X Extracts X X X X ..... nished on February 4, 1989, and it was to remain in force up to May 3, 1989. The second bank-guarantee No. 10 of 1989 for ₹ 13,50,000 was furnished on February 25, 1989, and it was to remain in force up to May 3, 1989. The appellant invoked the bank guarantees by giving due notice to respondent No. 2-bank. On coming to know of the invocation of the bank guarantees, the plaintiff-respondent No. 1 filed the instant suit for a permanent injunction along with an application under Order 39, Rule 3, and another application under Order 39, Rules 1 and 2 read with Section 151 of the Code of Civil Procedure. The trial court granted an ex parte temporary injunction by the impugned order on the same day. 3. Being aggrieved by the ex parte order of temporary injunction passed by the trial court, defendant No. 1 has filed this appeal. 4. Learned counsel for the appellant has submitted that the learned lower court has ignored the existence of an arbitration clause in the contract and that the appellant desires to move an application under Section 34 of the Arbitration Act before the court and because of grant of an ex parte temporary injunction in favour of plaintiff-respondent No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deferred, the object of temporary injunction would-be frustrated. 7. Learned counsel for respondent No. 1 has cited the decision in Gunnabala Chowdhurani v. Hemnalini Chowdhurani AIR 1918 Cal 495 to submit that, in a suit for a permanent injunction, a temporary injunction ought not to be refused where the refusal would defeat the object of the suit and amount to denial of justice. Learned counsel has also submitted that it was not necessary for the plaintiff to make out a prima facie case before the grant of ex parte temporary injunction and what is to be seen by the court is whether there was a serious question to be tried in the case. He placed reliance on a decision of the House of Lords in the case of American Cyanamid v. Ethicon Ltd. [1975] 1 All ER 504. The relevant observations therein are as follows (p. ) : There was no rule of law that the court was precluded from considering whether, on balance of convenience, an interlocutory injunction should be granted unless the plaintiff succeeded in establishing a prima facie case or a probability that he would be successful at the trial of the action. All that was necessary was that the court should be satisfied that the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e notice in the appellate court, 10. It is, however, not disputed that this appeal against the issuance of an order of temporary injunction ex parte is maintainable. 11. Before examining the merits of the rival contentions raised by learned counsel against and in support of the impugned order of ex parte temporary injunction, it would be proper to notice the decisions cited before me, laying down the law on the subject of injunction in relation to bank guarantees and letters of credit. Next, it would also be necessary to notice the relevant provisions of the agreement dated February 2, 1989, and the facts appearing from the subsequent correspondence between the appellant-employer and the contractor which the plaintiff has filed along with the plaint in order to test the legality and propriety of the impugned order. 12. Turning to the case-law cited before me on the subject of temporary injunction to restrain invocation of bank guarantees, I propose to extract the relevant observations from the decisions cited which may have a bearing on the question to be decided in the present case. 13. Learned counsel for the appellant has placed reliance on a decision of the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the court should interfere . . . The question of examining the prima facie case or balance of convenience does not arise if the court cannot interfere with the unconditional commitment made by the bank in the guarantees in question. 14. In the case of United Commercial Bank v. Bank of India, AIR 1981 SC 1426 ; [1982] 52 Comp Cas 186 which has been cited before me, it has been held that courts should refrain from granting injunctions restraining performance of contractual obligations arising out of a letter of credit or a bank guarantee between one bank and another. In that case, the order passed by the High Court granting a temporary injunction restraining the appellant-bank from recalling a payment made under reserve from respondent No. 1, was set aside on a finding that it was difficult to say on the material on record that the plaintiffs had a prima facie case and that the plaintiffs had failed to establish that they would be put to irreparable loss unless an interim injunction was granted and that the balance of convenience clearly lay in allowing the normal banking transaction to go forward. 15. A case of enforcement of conditional bank guarantee furnished in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yveli Lignite Corporation Limited, AIR 1985 Mad 213, wherein the relevant observations are as follows (headnote) : If the bank guarantees are unconditional, the bank has no defence when its guarantee is sought to be enforced. It is the document of guarantee that has to be scanned to ascertain whether the guarantee is conditional or otherwise and whether it is an autonomous contract by itself. Ordinarily, the court shall not grant an injunction restraining enforcement of such bank guarantee says where there is a clear case of fraud of which the bank had notice and where the special equity was in favour of the beneficiary under the bank guarantee there is no absolute fetter on the court to grant injunction. 17. The plaintiff-respondent No. 1 has filed with the plaint a provisional agreement called the provisional builders contract agreement which was executed on February 2, 1989, by the appellant Rachita Builders and Financiers (P.) Ltd., New Delhi (described in the agreement as the employer ) and respondent No. 1, Chetak Constructions Ltd., New Delhi (called the contractor ), as per memorandum of agreement filed with the plaint. It has been stated in the agreement that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d., for the period from February 4, 1989 to May 3, 1989, the last date of lodgment of claim by the beneficiary being May 3, 1989. By the said bank guarantee, the contractor, Chetak Construction Ltd., has undertaken to pay to the employer, Rachita Builders and Financiers (P.) Ltd., an amount not exceeding ₹ 12,13,750 against any loss or damage caused to or suffered by the employer by reason of any breach by the said contract of any of the terms or conditions contained in the said agreement. 22. The said bank guarantee is an unconditional guarantee to pay the amount due and payable under the guarantee, merely on a demand from the employer, stating that the amount claimed is due by way of loss or damage caused to or that would be caused to or suffered by the employer by reason of breach by the contractor of any of the terms or conditions contained in the said agreement. The fact that the nature of the bank guarantee is unconditional is evidenced by Clauses (2) and (3) of the said guarantee which are reproduced as under : 2. We, State Bank of Indore, do hereby undertake to pay the amount due and payable under this guarantee without any demur merely on a demand from the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g words : The other bank guarantee (in lieu of demand draft to be submitted on or before 28th February, 1989) in which the beneficiary is JI Consultants, New Delhi, for the equivalent amount has not been forwarded. Kindly expedite the same. 26. A photo copy of the bank guarantee No. 10 of 1989 executed on February 25, 1989, which the plaintiff has filed with the plaint is almost in identical language as the bank guarantee No. 4 of 1989 and the beneficiary is stated to be Rachita Builders and Financiers (P.) Ltd. and not JI Constructions, New Delhi, as stated in the aforesaid letter dated February 11, 1989. 27. It appears that the bank guarantee No. 10 of 1989 dated February 25, 1989, was sent by the contractor to the employer along with the forwarding letter dated February 26, 1989, filed with the plaint. The said letter states that the bank guarantee No. 10 of 1989 was given in lieu of a bank draft for ₹ 12,13,750 provided in clause earnest money 2.1.1(b) of the agreement, in accordance with the request made during the telephone discussion. The contractor requested the employer in the said letter to issue an amendment to the relevant clause of the agreement ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iency in the earnest money by March 24, 1989. A letter dated March 28, 1989, addressed to the contractor by the employer filed along with the plaint makes a query about furnishing a demand draft for ₹ 10,77,500 as fulfilment towards earnest money and further states that : As the extension period for the due date has expired effective from March 24, 1989, we shall request you to clarify the matter, as our overseas client needs to be intimated for taking a decision in the matter. 31. By another letter dated April 17, 1989, addressed to the contractor, the employer has pointed out the failure on the part of the contractor to submit a demand draft for ₹ 10,77,500 as fulfilment of earnest money criterion and it has been stated in the said letter that, on account of failure of the contractor to make good the deficiency of earnest money criterion before the deadline of March 18, 1989 and March 24, 1989, the contractor's offer became subject to review and a decision in that regard would be taken at a joint meeting of the contractor employer and the employer's overseas client. It has also been pointed out in the said letter that another deficiency in the earnest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he employer to the contractor for invocation of the other bank guarantee No. 10 of 1989 for ₹ 13,50,000. 36. The law relating to courts' interference by injunction restraining invocation of the bank guarantee has been settled by the various decisions of the Supreme Court and other courts and the relevant observations have been extracted from the decisions of the Supreme Court and other courts cited before me in the foregoing paragraphs. 37. It is clear from the said decisions that courts will not interfere with enforcement of bank guarantees or letters of credit unless a case of fraud or a case of apprehension of irretrievable injustice has been made out so that either there should be a good prima facie case of fraud or of special equities in the form of preventing irretrievable injustice between the parties. 38. In the instant case, learned counsel for the contractor has sought to support the impugned order by raising a contention that there is a case of fraud and special equity in favour of the contractor. But from a perusal of the plaint averment, there does not appear to be any case of fraud or special equity made out. As has been observed in the case of Bane ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussion aforesaid, it cannot be doubted that the bank guarantee No. 4 of 1989 dated February 4, 1989, furnished by the contractor in fulfilment of the earnest money Clause 2.1.1(a) of the agreement is enforceable on a claim being lodged in time by the employer and the amount thereunder becomes payable to the employer. 44. It was submitted on behalf of the respondent-contractor that the condition of earnest money clause had been fully complied with and there was no breach of the term of furnishing a demand draft contemplated in Clause 2.1.1(b) since that term had been modified by the employer who had accepted a bank guarantee No. 10 of 1989 dated February 25, 1989. But this submission made on behalf of the contractor does not appear to be correct on a perusal of the aforesaid correspondence between the employer and the contractor the relevant portions of which have been stated in the foregoing paragraphs. 45. It is true that the employer had shown a helpful attitude to consider substitution of a bank guarantee in place of a demand draft as compliance with the earnest money Clause 2.1.1(b) of the agreement on account of difficulty shown by the contractor in furnishing a dema ..... X X X X Extracts X X X X X X X X Extracts X X X X
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