ORDER
DR. M.K. Sharma, J.
1. By this order I propose to dispose of I.A. 7956/1998 arising out of Suit No.1952/1998 filed by the plaintiff praying for an injunction re-straining the defendant No.1 from encashing the financial bank guarantees for an aggregate sum of Rs.11,78,30,000/- all dated 5.11.1997 in any manner till the disposal of the suit.
2. The plaintiff has filed a suit in this court against the defendants seeking for a permanent injunction in favour of the plaintiff and against the defendant No.1 restraining the defendant No.1 from encashing the said bank guarantees and also for restraining the defendant No.2 from releasing any amount to defendant No.1 against the said financial bank guarantees.
3. In order to appreciate the contentions of the learned counsel appearing for the parties it would be necessary to state some background facts leading to the presentation of the present suit and filing of the injunction application.
4. The plaintiff entered into a license agreement with the Department of Telecommunications, Union of India/respondent No.1 on 30.8.1994 for providing Radio Paging Service in 10 cities namely Mumbai, Delhi, Calcutta, Madras, Bangalore, Hyderabad, Ahmedabad, Pune, Kanpur and Lucknow. In terms of the aforesaid license agreement the plaintiff, who was granted license was required to provide financial bank guarantees to defendant No.1 to secure the outstanding license fee payment due from the plaintiff to defendant No.1. Relevant clause of the agreement for furnishing financial bank guarantee is extracted below:-
18(d)(ii):
Since this account will not have adequate funds initially, a financial bank guarantee is required till this account becomes sufficiently healthy and continues to be so. For the period upto the first two years after commissioning/provision of the service, the Authority may specify 'nil' amount to the bank where escrow account is established, as financial bank guarantee would be available for the initial period. Alongwith the acceptance of letter of intent, 10% of the first year's paging levy will be required in the form of a bank draft and 90% of the first year's paging levy will be required in the form of a financial bank
guarantee in the format given in Annexure-1, valid for one year. Subsequent continuance of this financial guarantee will be decided by the Authority based on the amount which becomes available in the account for purposes of operation of the escrow account
mentioned above keeping in view the amount due to DOT."
In pursuance of the aforesaid requirement to be complied with by the plaintiff the defendant No.2, Sakura Bank Limited gave various financial bank guarantees in favour of defendant No.1, the details of which are set out in paragraph 5(d) of the plaint. The said financial bank guarantees furnished by defendant No.2 on behalf of the plaintiff to defendant No.1 were for a total sum of Rs.11,78,30,000/- all dated 5.11.1997 and the same were valid upto 30.11.1998 which have also been directed to be extended for another two months in view of pendency of the present suit in this court. The said bank guarantees stipulated that the said bank at the request of the licensee irrevocably and unconditionally guarantee to the defendant No.1 that the licensee would pay all the dues including but not limited to the license fee the excess charges etc. to the authority. It was also stipulated that the bank undertakes to pay to the authority the aforesaid amount against any loss or damag caused to or suffered or would be caused to or suffered by the authority by reason of any failure of the licensee to pay above mentioned dues, charges or any part thereof within the period stipulated in the license. The bank further undertook to pay as primary obliger and as surety to pay said amount to the authority immediately on demand and without any demur stating that the amount claimed is due by failure of the licensee to pay any fees or charges or any part thereof in terms of the said license. It was declared in the said bank guarantees that the decision of the authority as to whether licensee has failed to pay the said license fees or any other fees or charge or any part thereby payable under the said license as to the amount payable to the authority by the bank hereunder would be final and binding on the bank.
5. The defendant No.1 by its letter dated 11.9.1998 informed the defendant No.2 that the licensee, the plaintiff had failed to discharge the contractual obligation by not paying the periodical license fee which had accumulated to Rs. 26,03,01,500/- and on that account put a formal claim of the Department of Telecommunication on the aforesaid sum against the subject guarantees which the bank was liable to pay as per the terms contained therein. The defendant No.1 called upon the defendant No.2 to release the aforesaid payment of the amount of Rs. 11,78,30,000/- in the form of Demand Draft/ Banker’s Cheque, which the bank was liable to release without any demur and taking the decision of defendant No.1 as final and binding on them.
6. I am informed that in pursuance of the aforesaid request and invocation of the financial bank guarantees by defendant No.1 the defendant No.2 took necessary steps to release the payment but before the same could be remitted by defendant No.2 in favour of defendant No.1 the present suit was instituted by the plaintiff and accordingly, the said amount has so far not been released by defendant No. 2. However, during the pendency of the present suit in this court the plaintiff offered to pay Rs.1 crore towards license fee for the third year without prejudice to the rights and conten-tions of the parties in the present suit and accordingly, the plaintiff was permitted to do so and the said amount of Rs.1 Crore has since been paid to the defendant No.1.
7. Mr. Chandiok, appearing on behalf of the plaintiff submitted that the invocation of the bank guarantee by defendant No.1 is not in terms of the bank guarantees and that the defendant No.1 has acted in violation of the terms of the license agreement entered into between the parties. He further submitted that the plaintiff as also numerous other radio paging offerers of the country have filed representations before the defendant No.1 and without taking any decision the defendant No.1 in clear violation of the express terms of the financial bank guarantees issued the impugned letter dated 11.9.1998 seeking enforcement of financial bank guarantees and there-by putting the plaintiff to undue hardship. It is also stated in the application filed by the plaintiff seeking for injunction that invocation of the said bank guarantees by defendant No.1 has caused prejudice to the plaintiff and the said action, if allowed to be enforced would amount to unjust enrichment.
Mr. Chandiok also submitted that the invocation of the bank guarantees is fraudulent and therefore, in terms of various decisions of the Supreme Court such invocation by the defendant No.1 is required to be restrained. In order to substantiate his submission that the invocation of the bank guarantee by defendant No.1 was fraudulent Mr. Chandiok relied particularly on 3 factors. According to him the financial bank guarantees furnished by the defendant No.1 at the request of the plaintiff to the defendant No.1 were all expiring on 30.8.1998 but the defendant No.1 wrote a letter to the plaintiff calling upon it to extend the bank guarantees contending inter alia that the post-tender/license concessions sought for by the plaintiff some of which are subjudice and therefore, the bank guarantees are to be revalidated. It is submitted that in view of the aforesaid representation made by defendant No.1 the bank guarantees were extended by letter dated 24.8.1998 and immediately after uch extension of the bank guarantees at the representation of defendant No.1 the same were sought to be invoked by the letter dated 11.9.1998 and thus the entire action of defendant No.1 is fraudulent. In support of his contention the learned counsel also relied upon the provisions of Section 17 of the Contract Act. It was also submitted that the amount claimed by defendant No.1 in the impugned letter is Rs. 26 Crores whereas in other communication claim of the plaintiff was restricted only to Rs. 21 crore and therefore, the invocation is stated to be fraudulent. The third feature which was indicated by the learned counsel for the plaintiff to bring home his point is the fact that the concessions sought for by the plaintiff are still under consideration of the defendant No.1 in respect of which meetings have been taking place between the plaintiff and the defendant, which fact is also admitted and accepted by the defedant in paragraph 15 of the statement wherein it is stated that the representatives of the association have been having meetings and therefore, when the matter is still under consideration of defendant No.1 and particularly when the Prime Minister of India has issued a statement that the Government is considering to bring in some new policies with regard to paging licenses, invocation of the bank guarantees at that stage is tainted with fraudulent motives. In support of his submission the learned counsel relied upon the decisions of this court in Ansal Properties and Industries Pvt. Ltd. Vs. Engineering Projects India Ltd., 1998(1) Delhi Lawyer 339; M/s. Har Pershad & Company Ltd. Vs. Sudershan Steel Mills and others, and the decision of the Supreme Court in Hindustan Steel Works Constructions Ltd. Vs. Tarapore & Co. and another, .
8. Mr. Tikku appearing for defendant No.1, on the other hand submitted that the defendant No.1 has not approached this court with clean hands and on that count alone the relief sought for by the plaintiff is required to be rejected as grant of injunction is an equitable relief. He submitted that the plaintiff in the plaint has categorically stated that there are only three disputes between the plaintiff and defendant No.1 which consist of provision of free resources at the point of interconnects, reduction of license fee payable and deferment of the license fee payable for the third year. According to the counsel in respect of the dispute providing for free resources at the point of interconnects and reduction of license fee the plaintiff has already preferred a petition before the Telecom Regulatory Authority of India which was registered as Petition No. 17/1998, which is pending disposal before the said authority. He submitted that the plaintiff has suppressed the aforesaid fac in the present suit, besides suppressing the fact that the plaintiff also preferred the suit in this court which was registered as Suit No. 2320/1996 wherein also the plaintiff sought for restraining the defendants from encashment of bank guarantees for the same amount of Rs.11,78,30,000/- and the said injunction was not granted by this court. Therefore, the plaintiff having not come to this court with clean hands the application is liable to be dismissed. Counsel further submitted that the total amount due from the plaintiff to defendant No.1 towards license fee and other charges on the date of filing of the suit was more than Rs. 26 Crore. He further submitted that the plaintiff has been running the service and carrying on the business collecting fee from the customers whereas he has failed to deposit the license fee, although he is being financially benefited through the collection of charges from the customers. He also submitted that the financial bank guarantees provided at the request of the plaintiff in terms of the agreement were unconditional and irrevocable and the said bank guarantees were invoked in accordance with the terms of the agreement and therefore, the same should be allowed to be invoked and the amount remitted to the defendant No.1.
9. In the light of the aforesaid submissions of the learned counsel for the parties, I have considered the records of the case and the decisions relied upon by the counsel appearing for the parties and proceed to record my findings thereon.
10. In paragraph 5(d) of the plaint the plaintiff has set out the particulars of the financial bank guarantees. A perusal of the records of Suit No.2320/1996 indicates that the plaintiff in the said suit also sought for temporary injunction restraining the defendant No.1 from invoking the bank guarantees, particulars of which have been set out in paragraph 14 of the plaint of the said suit. The said bank guarantees relate to the same cities as that of the financial bank guarantees relating to the present suit. Except for mentioning in the plaint that the plaintiff also approached this court seeking relief by way of reduction of license fee which is pending, no particulars of the said suit were given nor any mention was made in the present case that an injunction order was sought for in respect of the bank guarantees of same amount in the said suit. According to the plaintiff there are three disputes between the plaintiff and defendant No.1 in respect of payment of license fee whch pertain to provision of free resources, deferment of payment of license fee and reduction of license fee and the aforesaid issues as admitted by the plaintiff in paragraph 5(o) are pending for consideration before the Telecom Regulatory Authority. The plaintiff also did not mention the case No. before the court. However, a copy of the petition filed by the plaintiff before the said authority has been put on record by the counsel appearing for defendant No.1 for my perusal. A perusal of the said petition indicates that all the aforesaid disputes sought to be raised by the plaintiff are pending disposal before the Telecom Regulatory Authority and therefore, subjudice before another authority. The aforesaid position indicates that the plaintiff failed to disclose all material facts and also failed to come to this court with all informations relevant to the purpose of adjudication and deciding the present suit and the same have been unfolded only subsequent to the filing of the suit. The conduct of the plaintiff in approaching and coming to this court cannot be said to be with clean hands as full disclosure of all materials were not done by the plaintiff.
11. The law relating to invocation of the bank guarantees is by now well settled. Numerous decisions have been rendered by the Supreme Court laying down and reiterating the principles which the court is to apply when a request is made for grant of an injunction restraining encashment of a bank guarantee. In this connection reference may be made to the decision of U.P. Cooperative Federation Ltd. Vs. Singh Consultants, ; G.E.T. Services Company Inc. Vs. M/s. Punj Sons (P) Ltd., ; Svenska Handelsbanken Vs. M/s. Indian Charge Chrome, ; M/s. Larsen & Toubro Ltd. Vs. Maharashtra State Electricity Board, ; Hindustan Steel Workers Vs. G.S. Atwal & Co., ; Hindustan Steel Works Construction Ltd. Vs. Tarapore & Co., 1996 SC 2268; U.P. State Sugar Corporation Vs. Sumac International, ; Ansal Engineering Projects Ltd. Vs. Tehri Hydro Development Corporation Ltd., .
12. In U.P. State Sugar Corporation (supra) in paragraph 16 the Supreme
Court stated thus:-
“Clearly, therefore, the existence of any dispute between the parties to the contract is not a ground for issuing an injunction to restrain the enforcement of bank guarantees. There must be a fraud in connection with the bank guarantee. In the present case we fail to see any such fraud. The High Court seems to have come to the conclusion that the termination of the contract by the appellant and his claim that time was of the essence of the contract, are not based on the terms of the contract and, therefore, there is a fraud in the invocation of the bank guarantee. This is an erroneous view. The disputes between the parties relating to the termination of the contract cannot make invoca-tion of the bank guarantees fraudulent. The High Court has also referred to the conduct of the appellant in invoking the bank guarantees on an earlier occasion on 12.4.1992 and subsequently withdrawing such invocation. The court has used this circumstance in aid of its view that the time was not of the essence of thecontract. We fail to see how an earlier invocation of the bank guarantees and subsequent withdrawal of this invocation make the bank guarantees or their invocation tainted with fraud in any manner. Under the terms of the contract it is stipulated that the respondent is required to give unconditional bank guarantees against advance payments as also a similar bank guarantee for due delivery of the contracted plant within the stipulated period. In the absence of any fraud the appellant is entitled to realise the bank guarantees.”
In the said decision the principles laid down by the Supreme Court in respect of the principles of invocation of bank guarantee have also been reiterated when the court has said that the courts should be slow in granting injunction restraining realisation of a bank guarantee which could be done only in case of fulfillment of either of the two exceptions. The first exception as stated therein is fraud in connection with such a bank guarantee which would vitiate the very foundation of such a bank guarantee and therefore, if there be such a fraud of which the beneficiary seeks to take advantage he could be restrained from doing so. The second exception relates to cases where allowing the encashment of un-conditional bank guarantee would result in irretrievable harm or injustice to one of the parties concerned. In Dwarikesh Sugar Industries Ltd. Vs. Prem Heavy Engineering Works (P) Ltd. and another, 1997(2) Arb. LR 350, it was reiterated that when in the course of commercial dealin an unconditional bank guarantee is given or accepted, the beneficiary is entitled to realise such a bank guarantee in terms thereof irrespective of any pending disputes. In the said decision the court reiterated the general principle in respect of invocation of the bank guarantee by quoting a passage from the decision of the Supreme Court in U.P. State Corporation’s case (supra) which summarised the general principle as follows:- “The law relating to invocation of such bank guarantees is by now well settled. When in the course of commercial dealings an unconditional bank guarantee is given or accepted, the beneficiary is entitled to realize such a bank guarantee in terms thereof irrespective of any pending disputes. The bank giving such a guarantee is bound to honour, it as per its terms irrespective of any dispute raised by its customer. The very purpose of giving such a bank guarantee would otherwise be defeated. The courts should, therefoe, be slow in granting an injunction to retain the realisation 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 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 bank guarantee is given, the harm or injustice contemplated under this head must be of such an exceptional and irretrievable nature aswould override the terms of the guarantee and the adverse effect of such an injunction on commercial dealings in the country.”
13. Mr. Chandiok, appearing for the plaintiff submitted that the aforesaid fraud as referred to in the decisions of the Supreme Court could also be when a demand by the beneficiary under the bank guarantee is made in case of any fraud committed by the beneficiary while executing the underlying contract but it might become so because of subsequent events or circum-stances and in that event also the demand would become fraudulent and that has been so accepted by the Supreme Court in the decision of Hindustan Steel Works Construction Ltd. (supra). The aforesaid contention of the learned counsel for the plaintiff is legally a correct proposition for the Supreme Court has said that fraud which is recognised as an exception is the fraud by one of the parties to the underlying contract and which has the effect of vitiating the entire underlying transaction and that the demand by a beneficiary under the bank guarantee might become fraudulent not because of any fraud committd by the beneficiary while executing the underlying contract but it might become so because of the subsequent events or circumstances. The Supreme Court further stated that the courts could restrain a person making such a fraudulent demand from enforcing a bank guarantee. Counsel also submitted that the financial bank guarantees have not been invoked by the defendant No.1 in terms of the agreement and therefore, also the aforesaid demand is invalid and illegal. According to the learned counsel the invocation of the bank guarantee by the defendant No.1 would show that by invocation of the said bank guarantees the defendant No.1 was required to ascertain the dues since the term of the bank guarantee is that the bank is required to pay the fees, dues or charges or any part thereof. The counsel submitted that without determining the dues the defendant No.1 was incapable of invoking the bank guarantee. The said submission is without any merit and baseless, for in my considered opinion the defendant No.1 has already stated in its invocation letter that Rs. 26,03,01,500/- is due from the plaintiff towards license fee. The submission of the learned counsel for the plaintiff that without determination of the dues by a competent authority or by an arbitrator no such demand is payable, cannot be accepted and in support I may only refer to the observation made by the Supreme Court in paragraph 23 in the case of Hindustan Steel Works Construction Ltd. (supra). In the said case also it was pleaded that there is a serious dispute on the question as to who had committed breach of the contract and in that context the Supreme Court observed that the special circumstances and/or special equities which had been pleaded in the case are that there is a serious dispute on the question as to who had committed breach of the contract, the contractor had a counter claim against the defendant, the disputes between the parties had been referred to an arbitrator and that no amount is e and payable by the contractor till the arbitrator declares the award. The Supreme Court in the said context held that the said factors are not sufficient to make the case an exceptional case justifying interference by restraining the appellant from enforcing the bank guarantees. The bank guarantees furnished by the plaintiff in the present case on the face of it are un-conditional. The invocation of the said bank guarantees by the defendant, in my considered opinion, was issued in terms of the bank guarantees and the submission of the plaintiff in that regard is without merit.
14. The other aspect argued by the learned counsel for the plaintiff that
remains to be answered is whether the invocation of the bank guarantee by the defendant No.1 is in any manner fraudulent. The plaintiff in the plaint has only stated that the action of defendant No.1 in invoking the bank guarantee is fraudulent. The reason given for such contention at the time of argument are that the representations of the plaintiff were pending before the defendant No.1 for reduction of license, that dues dues sought to be claimed by the defendant against the plaintiff towards arrear of license fee is different inasmuch as at one place they have claimed for Rs.26 Crores whereas in another they have claimed Rs. 21 Crores and that the defendant proceeded to invoke the bank guarantees immediately after asking for renewal of the bank guarantees. According to the counsel, all these factors lead to one conclusion, namely – that the invocation of the bank guarantees is fraudulent. In the plaint the plaintiff has not pleaded any fraud of the beneficiary at the ime of furnishing the bank guarantees. Admittedly dues are payable by the plaintiff to defendant No.1 towards license fee which are in arrears. It is also an admitted position that the plaintiff has been collecting the fee from the customers on the basis of the license provided by defendant No.1. Under the license the plaintiff is required to and bound to pay the license fee. It is true that certain representations of the plaintiff are pending with the defendant No.1, but the subject matter of the said representations are also the subject matter before the Telecom Regulatory Authority and therefore, subjudice. Since the validity of the bank guarantees were to expire the defendant No.1 called upon the plaintiff to renew the same as furnishing of such bank guarantees is a pre-requisite under the license. Raising of the dispute and pendency thereof with regard to grant of concession to the license fee, providing for free resources at the point of interconnection, quantum of license fe relate to the main contract entered into between the plaintiff and the defendant and would be considered at the appropriate stage. But such disputes although might exist do not and cannot make the demand and invocation a fraudulent action. Therefore, none of the aforesaid factors as stated by the learned counsel for the plaintiff would make the action of the defendant invoking the bank guarantees a fraudulent one. The plaintiff has miserably failed to prove and establish that the action of the defendant No.1 in invoking the bank guarantees is in any manner fraudulent. Thus, in my considered opinion the plaintiff has failed to make out any case for grant of an injunction as sought for in the present application restraining the invocation of the bank guarantees and remittance of the amount by defendant No.2 to defendant No.1. However, while invoking the bank guarantee, and asking for remittance of the amount of Rs. 1 Crore deposited by the plaintiff with the defendant during pendency o the present suit in this court shall be deducted. The application fails and is accordingly, dismissed.