ORDER
1. The petitioner through the present application has sought an order to interdict respondent No. 1, their officers, employees and agents from encashing the bank guarantee dated March 5, 1997 issued at their instance by respondent No. 2. They further want that respondent No. 2 be restrained from releasing the payment thereof in pursuance of the letter dated September 23, 1997.
2. Brief facts which would be required to be gone into while deciding the present application are as under: that the petitioner herein are a society registered under the Societies Registration Act (hereinafter referred to as ‘petitioner’ for the sake of convenience). They are an instrumentality of the State under the Ministry of Textile. The same has been constituted by the Government of India with a view to taking up welfare schemes of the handloom sector and to look after the interests of the weavers throughout the country. Respondent No.1 i.e., the State of Bihar in one of their welfare schemes decided to distribute ‘dhotis’ and ‘sarees’ to the under-privileged section of the State at subsidised rates. Consequently they invited tenders from various suppliers in the month of June 1996 for supply of ‘dhotis’ and ‘sarees’. In response to the said tenders the petitioner also submitted their tenders and ultimately got the contract on March 5, 1997 for supply of ‘dhotis’ and ‘sarees’ to the Government of Bihar valued at Rs. 200 crores approximately. The petitioner are not a manufacturer of the handloom products. Consequently after having secured the contract, the petitioner approached various handloom agencies/societies for the supply of ‘dhotis’ and ‘sarees’ to respondent No.1. As per the terms of the contract the total value of the contract is Rs. 199.8546 crores. The respondent No.1 paid a sum of Rs. 40 crores to the petitioner as mobilisation advance. The petitioner in token thereof furnished a bank guarantee for the said amount in favour of respondent No.1. The respondent were under an obligation to make payment within 23 days from the date of the receipt of the goods as per the terms of the contract. However, they never made the payment within time. They have been perpetual defaulter in their compliance of the obligations under the contract. Despite letters dated April 25, 1997 and May 5, 1997 from the petitioner payments were not made in accordance with the terms of the contract.
3. Cl. 13 of the contract dated March 5, 1997 relates to two bank guarantees i.e., in the sum of Rs. 40 crores and Rs. 20 crores. The same can be invoked by the Chief Secretary, Bihar if there are sufficient reasons for the same after giving an opportunity of hearing to ACASH. It further provides that the petitioner would be provided seven working days’ time to refer the matter to the arbitrator. Respondent No.1 have invoked the bank guarantee through their letter dated September 23, 1997 on the basis of an order passed by the Chief Secretary, Government of Bihar, directing respondent No.1 to invoke the bank guarantee furnished by the petitioner in terms of clause 13 of the agreement. The said order of invocation is an un-reasoned order and is contrary to the facts on record. The same was passed without application of mind and is based on incorrect information. One of the terms of the impugned bank guarantee and the present contract bar the encashment of the same for a period of seven days after the invocation of the same. During the said period of seven days the petitioner has been given a right to approach the arbitrator for adjudication of the disputes. Respondent No. 1 invoked the bank guarantee vide their letter dated September 23, 1997 and had directed respondent No. 2 to encash the same. In case the respondent succeed in their design the petitioner would suffer irreparable loss and injury. The balance of convenience is also in favour of the petitioner inasmuch as in case in injunction is issued in favour of the petitioner it would be simply tantamount to delay in the encashment of the bank guarantee if the respondent ultimately succeed. However, in case the injunction is not issued that would lead to irreparable loss and injury to the petitioner inasmuch as the bank guarantee would be encashed.
4. The bank guarantee in the instant case is not independent of the contract. As per condition No.1 of the contract it is a part and parcel of the contract. The bank guarantee is thus one of the many documents forming part of the contract. The bank guarantee could have been invoked by the Chief Secretary only if there were sufficient reasons to do so and that, too, after hearing the petitioner. The petitioner, furthermore, were to be given seven days time to refer the matter to the arbitrator. The impugned bank guarantee is a conditional one inasmuch as a mechanism has been provided for invoking the bank guarantee. It can be invoked only for sufficient reasons and after giving an opportunity to the petitioner of being heard. Furthermore, seven working days time is to be provided to the petitioner after the invocation of the bank guarantee to approach the arbitrator. It has thus been prayed that respondent No. 1 be restrained from encashing the bank guarantee and respondent No. 2 be restrained from making payment under the said bank guarantee.
5. Respondent No.1 have opposed the application, inter alia, on the following grounds: that this Court has got no territorial jurisdiction to entertain the present petition. The impugned contract dated March 5, 1997 was signed and executed in Patna (Bihar). The entire performance of the contract was to take place in Bihar. The impugned bank guarantee was executed in Bihar. There is an express contractual obligation that all disputes relating to the bank guarantee shall be subject to the jurisdiction of the Patna Courts. A bank guarantee is a vital commercial document. It is the foundation of commercial dealings and trade and commerce. Hence any restraint on the encashment of the bank guarantee would be very fatal and prejudicial to the interest of the trade and commerce itself. An injunction order to restrain encashment of the bank guarantee can be issued only in those discerning few cases where a fraud has been practised on the bank which furnished the bank guarantee. The said fraud must be prima facie established. The other cases in which an injunction is issued would be a case of irretrievable injustice and special equities which are in favour of the petitioner. In case the petitioner are in a position to recover the amount by way be damages by ordinary means by filing a separate suit in that eventuality no injunction can be granted. A contract of guarantee is an independent contract in between the bank and the beneficiary. The Court need not look into the main contract while disposing of an application for the grant of injunction. The petitioner have failed to show prima facie that the instant case is a case of fraud. They have also failed to show that they are likely to suffer irretrievable injustice in case the injunction is not granted. The impugned bank guarantee in the present case is an unconditional one. Hence, no injunction could have been granted. The application is false and frivolous. It is liable to be dismissed.
6. It has been urged for and on behalf of the petitioner that the bank guarantee in the instant case furnished at the instance of respondent No. 1 by Syndicate Bank, respondent No. 2, did not form an independent contract. It was very much a part and parcel of the main contract dated March 5, 1997 in between the petitioner and respondent No. 1 i.e., the State of Bihar. The same was furnished in terms of the said contract. Hence the respondent cannot be permitted to encash the same unless and until they comply with the terms of the main contract laid down therein.
7. The next limb of the argument advance by the learned counsel for the petitioner Mr. Nayar, Sr. Advocate, is that the impugned bank guarantee is a conditional one. Hence respondent No.1 are under an obligation to fulfill the said conditions before invocation of the said bank guarantee. The learned counsel in this connection has led me through condition No.1 of the contract dated March 5, 1997 and has urged on the basis of the same that the bank guarantee herein is a part and parcel of the said contract. It is not a separate document. Hence it cannot be severed therefrom and read separately. The learned counsel in this connection has led me through the definitions (cl.1). It is in the following words:-
“The ‘Contract’ means the documents forming the tender and acceptance thereof and the formal agreement executed between the Government of Bihar and Association of Corporation & Apex Societies of Handlooms hereinafter called ACASH, the specifications laid down in the tender for ‘Dhotis’ and ‘Sarees’ Bank Guarantee, Performance Guarantee, and letters issued from time to time by the ACASH to Govt. of Bihar & Vice versa regarding terms and conditions of their offer and all these documents taken together shall be deemed to form one contract and shall be complementary to one another. In case of doubt the correspondence exchanged including minutes of meetings for finalisation of Agreement may be referred to.”
8. The learned counsel has thus strenuously argued that respondent No.1 herein in view of the above cannot be permitted to invoke the bank guarantee without the fulfillment of the said conditions.
9. Learned counsel for the respondent Dr. A.M. Singhvi, Senior Advocate, while countervailing the said arguments has contended that the bank guarantee is a separate and independent contract. Thus the invocation of the same is to be governed by the terms of the said guarantee. While applying for encashment of the said guarantee the beneficiary (State of Bihar), the respondent herein, need not look into the underlying contract as the same is irrelevant for the purposes of the same. The learned counsel has further urged that it is now a well settled principle of law that the Courts cannot be permitted to injunct a bank or the beneficiary from encashment of the bank guarantee except in those discerning few cases where the petitioner proves that the case is a case of fraud or a case of irretrievable injustice or the petitioner shows special equities in his favour.
10. It is manifest from the arguments of the learned counsel for the parties canvassed above that the bone of contention in between the parties is as to whether the respondent herein were entitled to invoke the bank guarantee and to encash the same for their benefit on their demand.
11. It is a well recognised principle of law settled by a catena of authorities that the Court would abhor to issue an injunction restraining the bank and the beneficiary from invocation of the bank guarantee except in certain cases where the person at whose instance the guarantee was furnished succeeds in making out a case of fraud which was committed by the beneficiary on the bank at the time of the furnishing of the bank guarantee. He is further required to furnish full particulars of the fraud in the plaint/petition. The fraud must be of an egregious nature. The second case in which the Courts would be justified in issuing a restraint order against encashment of bank guarantee would be those cases in which the person at whose instance the bank guarantee was furnished would be left without any remedy to recover the loss from the beneficiary on the basis of the main contract in case the same is allowed to be encashed. It is also now a well recognised principle of civil jurisprudence that the bank guarantee is a separate contract in between the bank and the beneficiary. It has absolutely nothing to do with the underlying contract or the supplementary contract in between the beneficiary and the person at whose instance the bank guarantee was furnished. The above view given vent to by this Court, finds support from a number of authorities which this Court is inclined to cite.
12. It was observed in National Thermal Power Corporation Ltd. Vs. Flow-more Pvt. Ltd. & Anr. “……On merit, the order of injunction issued by a learned Single Judge of the Delhi High Court cannot be sustained. In the case of Svenska Handelsbanken Vs. Indian Charge Chrome a Bench of three Judges of this Court has, while dealing with performance guarantees and guarantees against advances, observed that looking to the obligation assumed by the bank under such guarantees or letters of credit, the bank cannot be prevented by the party at whose instance the guarantee or letter of credit, was issued, from honouring the credit guaranteed. Since the bank pledges its own credit involving its reputation, it has no defense except in the case of fraud or irretrievable injustice. Fraud must be of an “egregious nature” so as to vitiate the entire underlying transaction. While irretrievable injustice should be of the kind arising in an irretrievable situation which was referred to in the US case of Itek Corporation Vs. First National Bank of Buston, the irreparable harm should not be speculative. It should be genuine and immediate as well as irreversible – a kind of situation which existed in the case of Itek Corporation. Where, on account of the revolution in Iran the American Government had cancelled all export contracts to Iran and had blocked all Iranian assets within the jurisdiction of the United States. Fifty-two Americans had been taken hostages in Iran. In this situation the Court felt that the plaintiff had no remedy at all and the harm to him would be irreparable……..
13. It was further observed in para 10 of the said judgment “A bank guarantee which is payable on demand implies that the bank is liable to pay as and when a demand is made upon the bank by the beneficiary. The Bank is not concerned with any inter se disputes between the beneficiary and the person at whose instance the bank had issued the bank guarantee……”
14. Their Lordships of the Supreme Court while dealing with a case of bank guarantee as reported in Ansla Engineering Projects Ltd. Vs. Tehri Hydro Development Corporation Ltd. & Anr., reiterated the above view “4. It is settled law that bank guarantee is an independent and distinct contract between the bank and the beneficiary and is not qualified by the underlying transaction and the validity of the primary contract between the person at whose instance the bank guarantee was given and the beneficiary. Unless fraud or special equity exists, is pleaded and prima facie established by strong evidence as a triable issue, the beneficiary cannot be restrained from encashing the bank guarantee even if dispute between the beneficiary and the person at whose instance the bank guarantee was given by the bank, had arisen in performance of the contract or execution of the works undertaken in furtherance thereof. The bank unconditionally and irrevocable promised to pay, on demand, the amount of liability undertaken in the guarantee without any demur or dispute in terms of the bank guarantee. The object is to inculcate respect for free flow of Commerce and Trade and faith in the commercial banking transactions un-hedged by pending disputes between the beneficiary and the contractor…….
“5…..The underlying object is that an irrevocable commitment either in the form of bank guarantee or letters of credit solemnly given by the bank must be honoured. The court exercising its power cannot interfere with enforcement of bank guarantee/letters of credit except only in cases where fraud or special equity is prima facie made out in the case as tribal issue by strong evidence so as to prevent irretrievable injustice to the parties. The trading operation would not be jettisoned and faith of the people in the efficacy of banking transactions would not be eroded or brought to disbelief.”
15. To the same effect are the observations of the Hon’ble Supreme Court as reported in :-
(1) U.P. Cooperative Federation Ltd. Vs. Singh Consultants and Engineers (P) Ltd., .
(2) General Electric Technical Services Company Inc. Vs. Punj Sons (P) Ltd. & Anr., .
(3) Svenska Handelsbanken Vs. M/s. Indian Charge Chrome & Ors. (1994) 1 SCC 502.
(4) Larsen & Tubro Ltd. Vs. Maharashtra State & Electrical Board & Ors. .
(5) South East Asia Shipping Co. Ltd. Vs. Nav Bharat Enterprises Pvt. Ltd. .
(6) Hindustan Steel Construction Ltd. Vs. Tarapore & Co. and Anr. .
(7) U.P. State Sugar Corporation Vs. Sumac International Ltd., .
(8) Dwarikesh Sugar Industries Ltd. Vs. Prem Heavy Engineering Works (P) Ltd. & Anr., .
16. With the above back drop let us now examine the facts of the present case. The petitioner herein have not pleaded any type of fraud alleged to have been committed by the beneficiary on the bank. In fact there is no reference to fraud in the entire petition. No particulars of the fraud as required has anywhere been pleaded in the petition. It is also not the case of the petitioner that in case the bank guarantee is allowed to be encashed it would be a case of irretrievable injustice and an injunction is required to be issued to stop the same.
17. The learned counsel for the petitioner has, however, strenuously argued that the present case is a case of conditional bank guarantee and unless the said conditions and the stipulations laid down therein are fulfillled the respondent cannot be allowed to invoke the bank guarantee. Thus the polemical question which arises for adjudication before this Court is as to whether the impugned guarantee furnished by respondent No. 2 at the instance of the petitioner is a conditional bank guarantee. The learned counsel in order to show and prima facie prove that it was a conditional bank guarantee has led me through a few lines of the said bank guarantee from the first page which are above the terms and conditions of the said bank guarantee. The said lines read as under: “Whereas the Director of Handlooms has agreed to advance an interest free sum of Rs. 40 crores (Rupees forty crores only) to the Contractor for commencing the execution of Contract and the contractor has agreed to give a bank guarantee for Rs. 40 crores against this advance for due fulfillment by the said Contractor of the terms and conditions contained in the said agreement and Syndicate Bank abovenamed has agreed to furnish this Bank Guarantee undertaking to pay to the Director of Handlooms an amount not exceeding Rs. 40 crores against any loss or damage caused to or suffered or would be caused to or suffered by the Director of Handlooms by reason where Contractor fails to return an amount not exceeding Rs. 40 crores or the amount lying as advance with Contractor whichever is less, Contractor may be given seven working days time to refer the matter to the Arbitrator in accordance with Clause 13 of the agreement.”
18. The learned counsel on the basis of the above has urged that it was obligatory on the part of the respondent to show before invocation of the bank guarantee that they have suffered the loss or damage. The second condition attached to the bank guarantee is that the contractor i.e. the petitioner herein should have been given seven working days time to refer the matter to the arbitrator in accordance with clause 13 of the agreement. To my mind the above conditions, if any, do not find a mention in the body of the bank guarantee which has been furnished by respondent No. 2 in favour of respondent No.1. Hence the said lines are not at all relevant for the decision of the present case. The conditions, if any, which find a mention in the body of the bank guarantee under the Heading “NOW THIS DEED WITNESSES AS UNDER” are following:
“(1) We, Syndicate Bank, do hereby undertake to pay the amount due and payable under this Guarantee without any demur, merely on a demand from the Director of Handlooms stating that the amount claimed is due by way of loss or damage caused to or would be caused to or suffered by the Director of Handlooms by any reason of breach by the said Contractor of any terms and conditions contained in the said Agreement or by reason of Contractor’s failure to perform the said Agreement. Any such demand made on the bank shall be conclusive as regards the amount due and payable by the bank under this Guarantee…..”
19. It is fully manifest from above that the bank issued an irrevocable letter of credit/guarantee in favour of respondent No.1 and undertook to pay an amount not more than Rs. 40 crores only on demand by the Director of Handlooms without any demur and protest. It was further categorically mentioned therein that any such demand made on the bank shall be conclusive as regards the amount due and payable by the bank under the bank guarantee and the said amount was to be paid without any demur and protest. Thus this Court is firmly of the view that the instant case is a case of unconditional guarantee. Learned counsel for the petitioner has tried to show certain strings and conditions attached to the said bank guarantee whereas in fact there is none.
20. Learned counsel for the petitioner has then argued and led me through clause 13 of the main contract in order to show that the bank guarantee in question is in fact a conditional one. The said clause reads as under:-
“The two bank guarantees (For Rs. 40 crores and Rs. 20 crores) may be invoked by the Chief Secretary, Bihar if there are sufficient reasons to do so, after giving an opportunity of hearing to ACASH. ACASH may be given seven working days time to refer the matter to the Arbitrator. Bank Guarantee to be given by ACASH will be unconditional and from a Nationalised Bank…..”.
21. The learned counsel on the basis of the above has contended that the bank guarantee could have been invoked only under the circumstances and after the fulfillment of the conditions alluded to above in clause 13, i.e:
(a) It could have been invoked by the Chief Secretary of Bihar only;
(b) He could have invoked the same only when there are sufficient reasons to do so;
(c) A duty was cast on the shoulders of the Chief Secretary to give an opportunity to the petitioner of being heard; and
(d) ACASH was to be given seven working days time to refer the matter to the Arbitrator.
22. The learned counsel in view of the above has argued that respondent No. 1 failed to fulfill the said conditions and it was owing to the said fact that the injunction order dated September 30, 1997 was issued. To my mind the contention of the learned counsel is without any merit.
23. The conditions adverted to above under clause 13 are in the main contract in between the petitioner and respondent No.1. The said conditions do not form part of the bank guarantee. Hence the learned counsel is not justified in relying upon them and insisting on their fulfillment. Further-more, while urging the said point before this Court the learned counsel is oblivious of the fact that it was specifically mentioned in the clause 13 of the contract itself that bank guarantee furnished by the bank would be an unconditional one and from a Nationalised bank. Thus the conditions, if any, were washed off the records once it was specifically mentioned that the bank guarantee furnished by the petitioner would be unconditional.
24. There is yet another aspect of the matter. The said conditions, if any, were duly fulfillled by respondent No.1 before invoking the bank guarantee. A perusal of the letter dated September 1, 1997 issued by the Director, Handloom and Sericulture, to the Chief Secretary, reveals that a request was made to the Chief Secretary for permission to invoke the bank guarantee. The Chief Secretary vide his order dated September 3, 1997 issued a notice to the petitioner herein to show cause as to why an order invoking the bank guarantee be not passed. The petitioner participated in the proceedings before the Chief Secretary and they were given due hearing. The Chief Secretary after hearing both the parties and after looking into the records submitted by both the parties came to the conclusion that the petitioner have violated the terms of the contract. According to him, (a) they failed to furnish the performance guarantee in the sum of Rs. 20 crores which they were required to do as per the terms of the contract; (b) they have neither adhered to the delivery schedule nor any revised schedule was submitted; (c) they have deposited a sum of Rs. 28.31 crores with interest bearing deposits in the bank.
25. It was in the above circumstances that the Chief Secretary permitted the Director, Handlooms, Government of Bihar, to invoke the bank guarantee. Thus the Chief Secretary has passed a detailed and reasoned order giving out reasons for invocation of the bank guarantee. The said order was passed after hearing both the parties. Thus it does not lie in the mouth of the petitioner to allege that the bank guarantee has been invoked without any reason and rhyme. Admittedly the term with regard to seven working days time to be given to the petitioner to refer the matter to the arbitration, vide clause 13 of the contract, is a directory one is manifest from the use of word ‘may’ by the parties in clause 13 of the contract. The same is with regard to the stipulation of the seven working days time to be given to the respondent which finds a mention in the bank guarantee. In any case it is amply clear from the copy of the statement of claim dated September 26, 1997 which has been placed on the file of the Court that the matter has already been referred to the arbitrator by the petitioner. The learned sole arbitrator did not think it proper to grant an injunction in favour of the petitioner though they prayed for the same vide para 15(a) of their prayer clause. He thought it proper to issue a notice to the respondent. Thus even this condition with regard to the grant of seven days time to the petitioner if it is held to be mandatory for the sake of argument has been fulfillled.
26. Learned counsel for the petitioner has then contended that since the matter has been referred to the sole arbitrator vide their statement of claim dated September 26, 1997, there cannot be any encashment of the bank guarantee till a decision is taken by the arbitrator in favour of either of the parties. To my mind the contention of the learned counsel is devoid of any force. Rather the said argument instead of helping the petitioner goes against them. It is a well established principle of law that in case a particular forum is available to a person to ventilate his grievances by way of recovery of damages or compensation from the beneficiary in that eventuality no injunction can be issued. Thus in the instant case admittedly a petition is pending before the arbitrator for resolving the conflict in between the parties which has arisen subsequent to the furnishing of the bank guarantee. Hence the petitioner cannot now set up the presentation of the said petition before the arbitrator for claiming the restraint order against the beneficiary i.e. respondent No. 1, as a ground for issue of an ad interim injunction.
27. The above view was given vent to by their Lordships of the Supreme Court in National Thermal Power Corporation Vs. Flowmore Pvt. Ltd. and another, “The second submission relates to the conduct of parties. Learned counsel for the first respondent has relied upon the fact that the first respondent kept all the bank guarantees alive by renewing them from time to time during the pendency of arbitration and on the fact that the appellant did not invoke the bank guarantees while the arbitration was in progress. Neither of these two circumstances can lead to the conclusion that the bank guarantees cannot be invoked while the arbitration is pending. The bank guarantees are unconditional and payable on demand. The circumstances pointed out by the learned counsel for the first respondent do not constitute a bar on the right or the appellant to encash the bank guarantees. In the present case there is also no circumstance pointed out which would result in any irretrievable injustice to the first respondent of the kind referred to in the case of Itek Corporation if the bank guarantees are realised.”
28. Learned counsel for the respondent Dr. Singhvi has vehemently contended that the petitioner herein obtained an injunction order from this Court vide order dated September 30, 1997 by making false allegations and wrong averments in the petition. While setting out the reasons that Court has got the jurisdiction to entertain the present petition it was stated in para W – 10 relating to the jurisdiction that the bank guarantee was executed at Delhi. Hence this Court has the jurisdiction to entertain the present petition. This fact is obviously wrong. The learned counsel, in this connection, has led me through an additional affidavit filed by Mr. S.P. Sinha dated 10th February, 1999. He has stated in the said affidavit vide para 2 that the Bank Guarantee was executed at Patna in the presence of Director (Handlooms), in the Chamber of Secretary, Department of Industries, Government of Bihar. It has further been stated in the said para that Mrs. J. Chaterjee, Vice Chairman and Mr. S. Malik, Deputy Secretary of the petitioner were present for and on behalf of the petitioner alongwith the representatives of the Syndicate Bank. The above fact is supported by the letter dated 18th October, 1997 from the Indian Airlines. The said letter was issued by Indian Airlines (vide Annexure RA/1) which has been placed on the file of this Court. A perusal of the said letter shows that Shri S. Mallik, Deputy Secretary and Mrs. Johra Chaterjee went from Patna to Delhi on 6.3.1997. It has further been stated in para 3 if the said affidavit that Mrs. J. Chaterjee was present in Patna on 5th March, 1997 and remained there till 6th March, 1997. She stayed at Hotel Chanakya. The respondent, in this connection, have placed on record a photocopy of Bill dated 6th March, 1997, issued by Hotel Chanakya i.e. (Annexure RA/2). Then there is a letter from Mr. S. Mallik, Deputy Secretary to the Director (Handlooms), wherein it has been admitted that he would be visiting Patna on 5th March, 1997 by morning flight and would return to Delhi by evening flight on 6th March, 1997. All the above documents go a long way to prima facie show and prove that the Bank Guarantee was executed at Patan. Thus, the petitioner made a false and wrong allegation vide para W-10 that the Bank Guarantee was executed at Delhi, with a view to simply invoking the jurisdiction of this Court. Hence, I feel that the application for grant of injunction is liable to be dismissed on this ground as well.
29. The petitioner while entering into the present contract with the respondent advanced a sum of Rs. 40 crores to the petitioner to execute the contract. The petitioner while executing the said contract committed breach of the terms of the contract inasmuch as instead of supplying the handlooms sarees they supplied sarees and dhoties woven on powerlooms. The respondent, in this connection, have placed on record a report submitted by the Northern India Textile Research Association which goes a long way to show prima facie that same were woven on powerlooms only. Thus the petitioner committed breach of the terms and conditions of the contract as referred to above. They also failed to furnish the performance guarantee. They also could not adhere to delivery schedules. Thus, they committed breach of the terms and conditions of the contract. Hence, it was in the above circumstances that the respondent invoked the impugned bank guarantee. Consequently, they were justified to do so. A bank guarantee is, so to say, the back-bone of a commercial transaction. It is said that business proceeds on beliefs or judgment of probabilities and not on certainties. Thus when a commitment is made, it must be honoured, otherwise people will lose faith in the commercial system. This is all the more so in case of a bank inasmuch as its own credit is at stake if the commitment in the form of bank guarantee is not honoured and payment is not made on demand. Thus, as and when the bank guarantee is furnished, the commitment made thereunder has to be honoured. In case an irrevocable letter of credit/bank guarantee issued by the bank is not honoured, the people will lose faith in all the commercial transaction and no reliance would be placed on the banking system and everything wild come to a stand still. Thus, the prima facie case is in favour of the respondent and against the petitioner.
30. There is nothing, whatsoever, on record to show as to why the bank should not honour its commitment and not allow encashment of the bank guarantee. The balance of convenience is also in favour of the respondent and against the petitioner. In case the injunction is issued the respondent would suffer irreparable loss and injury inasmuch as they will not be in a position to secure the sum which they gave to the petitioner by way of advance. On the other hand, in case the bank guarantee is allowed to be encashed the petitioner can recover the said amount from the respondent through the arbitration proceedings or by way of damages through a civil suit. The application for issue of ad interim injunction is thus dismissed.
31. Learned counsel for the respondent Dr. Singhvi has argued with all the vehemence at his command that this Court does not have the territorial jurisdiction to entertain the present petition and the order for the grant of an ad interim ex parte injunction was obtained by misleading this Court. According to the learned counsel no part of the cause of action arose within the territorial limits of this Court. The main contract dated September 3, 1997 was executed at Patna. The performance of the said contract was to take place at Patna. The bank guarantee was also executed in Patna. Furthermore, there is a specific clause in the bank guarantee in question that the Courts at Patna alone would have the territorial jurisdiction to entertain any suit or proceedings which may arise as a corollary of disputes in between the parties. The learned counsel has thus contended that this Court has no jurisdication to entertain the present petition.
32. Learned counsel for the petitioner Mr. Rajiv Nayar on the other hand, has argued that a part of the cause of action arose at Delhi inasmuch as the jurisdiction to entertain the arbitration petitioned was with an officer based in Delhi i.e., Shri Prabhat Kumar, Secretary, Ministry of Textiles, Government of India. The bank guarantee was furnished by a bank situated in Delhi i.e., Syndicate Bank, I.P. Estate, New Delhi. Payments as per clause 7 of the contract were to be made at Delhi. Hence, according to the learned counsel this Court will have the necessary jurisdiction to entertain the present petition.
33. I have heard the learned counsel for both the parties at sufficient length and have very carefully examined their rival contentions and have given my anxious thought thereto. A perusal of the last lines of the bank guarantee dated March 5, 1997 reveals that all disputes and claims relating to the bank guarantee in question shall be subject to the jurisdiction of the Courts at Patna. The said clause is very much relevant and material because a close scrutiny of the same shows that what was printed in connection with the jurisdiction initially was that all the disputes and claims relating to this bank guarantee shall be subject to the jurisdiction of Delhi Courts. However, the word ‘Delhi’ was scored out and instead the word ‘Patna’ was added at the said place. This goes to show that the parties were ad idem on the point that only the Courts in Delhi would have the necessary jurisdiction.
34. The factum with regard to the jurisdiction was further explained by the petitioner themselves through a letter dated February 21, 1997 addressed by Shri Sudershan Malik, Deputy Secretary, to the Manager, Syndicate Bank, New Delhi. It was clarified therein that the jurisdiction for settlement of the disputes was Patna Court instead of Delhi Court as communicated earlier. I am tempted to cite in extension the last para of the said letter in order to show and prove that the petitioner knew it fully well that it was settled and agreed upon in between the parties that Patna Courts only would have the necessary jurisdiction to entertain any suit and petition relating to any dispute which was likely to arise in between the parties. “Further, we would like to inform that the jurisdiction for the disputes is Patna Court instead of Delhi Court as communicated to you earlier….” (vide Annexure RA/5). This is a letter from the petitioner themselves addressed to the Manager, Syndicate Bank, New Delhi. Thus, now in view of the above is it available to the petitioner to contend to the contrary? Admissions are the conclusive proof of the facts stated therein unless satisfactorily explained. There is no explanation, whatsoever, offered by the petitioner to show to the contrary.
35. Learned counsel for the petitioner has, while contending that this Court has the necessary jurisdiction to grant interim injunction, has relied upon Section 9 of the Arbitration & Conciliation Act which reads as under :-
“9. Interim measures by court – A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with Section 36, apply to a court:-
(i)………
(ii) for an interim measure of protection in respect of any of the following matters, namely :-
(a) the preservation, interim custody or sale of any goods which are the subject matter of the arbitration agreement;
(b) securing the amount in dispute in the arbitration;
(c)…..
(d) interim injunction or the appointment of a receiver;
(e)……”
36. Learned counsel on the basis of the above provision of law has urged that since arbitration proceedings are pending before the Sectretary, Ministry of Textiles, Government of India, New Delhi, hence this Court has got the necessary jurisdiction. The contention of the learned counsel may be an ingenious one but can be brushed aside within an anon in view of the fact that no part of the cause of action in the present case arose within the jurisdiction of this Court. Hence the petitioner cannot gain any sustenance from the said provision of law.
37. I have already observed above in the body of this judgment while dealing with the injunction matter that the bank guarantee was executed at Patna in the office of the Secretary, Department of Industries, (vide additional affidavit dated February 10, 1999 sworn by Shri Surender Prasad Sinha – vide para 2). Then there is another affidavit sworn by the said officer i.e. Shri Surender Prashad Sinha, Director, Handlooms Department of Industries, dated February 26, 1999. It has been stated therein vide para 2 of the said affidavit that the main contract was executed in the official chamber of the Secretary, Department of Industries, Government of Bihar, Patna in the presence of Mrs. J. Chaterjee, Vice Chairman of the petitioner and Mr. S. Malik, Deputy Secretary alongwith the representatives of the Syndicate Bank, New Delhi. There are a good number of documents on this point which have been adverted to while dealing with the injunction matter and I need not refer to them over again.
38. The next contention raised for and on behalf of the petitioner is that the payments were to be made at Delhi, vide clause 7 of the main contract, hence the Delhi Courts would have the necessary jurisdiction to entertain the present petition. The learned counsel in support of his contention has led me through a judgment of the Hon’ble Supreme Court as reported in A.B.C. Laminart Pvt. Ltd. and another Vs. A.P. Agencies, Salem, . It was observed in the aforementioned authority (vide para 15)”…… In suits for agency actions the cause of action arises at the place where the contract of agency was made or the place where actions are to be rendered and payment is to be made by the agent. Part of cause of action arises where money is expressly or implied payable under a contract. In cases of repudiation of a contract, the place where repudiation is received is the place where the suit would lie. If a contract is pleaded as part of the cause of action giving jurisdiction to the Court where the suit is filed and that contract is found to be invalid, such part of cause of the action disappears. The above are some of the connecting factors”. The learned counsel while claiming inspiration and strength from the said judgment has vehemently argued that admittedly the payments were to be made at Delhi, vide clause 7 of the main contract. Hence Delhi Courts have got the necessary jurisdiction.
39. Learned counsel for the respondent, Dr. Singhvi, on the other hand, has argued that the said authority relates to a case of agency. A part of cause of action would arise where the contract of agency was made or the place where the payment is made as per the observation of the said authority. The instant case is a case with regard to the enforcement of a bank guarantee furnished by a bank. Hence the said authority is not at all applicable to the facts of the present case and cannot be considered a good law in view of a subsequent judgment of the Hon’ble Supreme Court as reported in South East Asia Shipping Co. Ltd. Vs. Nav Bharat Enterprises Pvt. Ltd. and another, , which deals with a case of bank guarantee. The said authority as cited by the learned counsel for the petitioner was duly considered vide para 2 of the said judgment and was dissented from. Hence the above said authority cannot come to the rescue of the learned counsel for the petitioner as the same would be treated as no more a good law. The observations in the said judgment can be adverted to with profit and I am tempted here to cite in extension paras 2 and 3 of the said Judgment which read as under : ” 2. The only controversy is whether the Delhi High Court has jurisdiction to entertain the suit. It is an admitted position that the contract was executed in Bombay. It is also an admitted position that the performance of obligations and liabilities under the contract was required to be done in Bombay inasmuch as cargo of livestock was to be transported in the ship from Kandla to Damman or Jeddah. It is also an admitted position that in furtherance of the execution of the contract at Bombay, the respondents had executed the bank guarantee at Delhi and had transmitted it to Bombay for performance of the contract. The question, therefore, is whether any part of the cause of action had arisen in Delhi. The learned counsel for the respondents had relied upon a judgment of this Court in A.B.C. Laminart (P) Ltd. Vs. A.P. Agencies, to contend that since part of the cause of action had arisen in Delhi, the High Court on the original side has jurisdiction to entertain the suit. We are unable to accept the contention”.
“3. It is settled law that cause of action consists of bundle of facts which give cause to enforce the legal injury for redress in a court of law. The cause of action means, therefore, every fact, which if traversed, it would be necessary for the plaintiff to prove in order to support his right to a judgment of the court. In other words, it is a bundle of facts, which taken with the law applicable to them, gives the plaintiff a right to claim relief against the defendant. It must include some act done by the defendant since in the absence of such an act no cause of action would possibly accrue or would arise. In view of the admitted position that contract was executed in Bombay, i.e., within the jurisdiction of the High Court of Bombay, performance of the contract was also to be done within the jurisdiction of the Bombay High Court; merely because bank guarantee was executed at Delhi and transmitted for performance to Bombay, it does not constitute a cause of action to give rise to the respondent to lay the suit on the original side of the Delhi High Court. The contention that the Division Bench was right in its finding and that since the bank guarantee was executed and liability was enforced from the bank at Delhi, the Court got jurisdiction, cannot be sustained.”
40. The facts of the authority referred to above are pari material with the facts of the present case. The above judgment relates to encashment of a bank guarantee which was executed at Delhi and transmitted to Bombay and the Hon’ble Supreme Court held that the Courts at Delhi did not have the necessary jurisdiction. In the present case even the bank guarantee was executed at Patna. The main contract was also entered into at Patna. The performance was to be enforced at Patna. Thus the said authority a fortiori would be applicable to the facts of the present case. Hence I do not have the slightest hesitation in holding that this Court does not have the necessary jurisdiction to entertain the present suit.
41. Learned counsel for the petitioner, Mr. Rajiv Nayar, Senior Advocate, cited a good number of authorities in support in his contention, which are as under:-
(i) M/s. Rawla Construction Co. Vs. Union of India and another. .
(ii) M/s. Harprashed & Co. Ltd. Vs. Sudarshan Steel Mills and others, .
(iii) Ansal Properties & Industries (P) Ltd. Vs. Engineering Projects (India) Ltd., 1997 III AD (Delhi) 1003.
(iv) Puri International (P) Ltd. Vs. National Building Construction Co. Ltd., .
42. I have very carefully gone through the same. I am of the view that the same are not applicable to the facts of the present case and are thus of no use to the petitioner.
43. In view of the above in normal circumstances I would have ordered the return of the petition for presentation to a proper Court at Patna. However, this is not possible in the circumstances of the present case inasmuch as the only relief claimed through the present petition is grant of an injunction which this Court has declined. There is no other relief. Hence, I am inclined to dismiss the present petition. The petition is dismissed with costs assessed at Rs. 15,000/-. The application for ad-interim injunction is also dismissed. The injunction order dated September 30, 1997 is hereby vacated.