JUDGMENT
D. Biswas, J.
1. This appeal is directed against the order dated 7.3.2003 passed by the learned ad-hoc Additional District Judge No. 2, Guwahati in Miscellaneous Arbitration Case No. 143/1998. By the impugned roder, the learned Judge restrained the appellant from encashing the bank guarantee till disposal of the ongoing arbitration proceedings between the appellant and the respondent.
2. The appellant and the State of Bihar executed an agreement dated 5.3.1997 for supply of handloom dhoties and sarees worth Rs. 200 crore. The appellant had by the agreement dated 1.4.1997 asked the respondent No. 1 for supply of 1,16,400 pieces of handloom dhoties and an equal number of handloom sarees to the State of Bihar. In terms of Clause 2 of the agreement, the respondent No. 1 was given a sum of Rs. 32 lakh as advance against the bank guarantee dated 8.4.1997 furnished by the respondent No. 1.
3; The dispute arose between the parties and the matter was referred to the Arbitral Tribunal for adjudication in terms of the arbitration clause. The proceeding is still pending before the Tribunal. During pendency of the proceedings, the appellant wrote the letter dated 8.4.1997 expressing their desire to invoke the bank guarantee indicating that there are sufficient reasons for such invocation. The respondent raised objection on the plea that there was no reason for such invocation. The respondent-Society then approached the learned court below seeking prohibitory orders. The respondent while seeking prohibitory orders pleaded that there is no allegation from the State of Bihar about the quantity and quality of the sarees and dhoties supplied, breach of any of the terms and conditions and that the letter of invocation was not in terms of the conditions embodied in the bank guarantee. Their specific plea before the learned court below was that the bank guarantee in question should not be invoked till disposal of the arbitral proceeding pending between the parties.
4. The learned court below examined the matter and came to the conclusion that the bank guaranteed was conditional and it cannot be invoked unless it is mentioned that the amount claimed was due by way of loss or damage caused to or suffered by the appellant. Clause 12 of the agreement between the parties reads as follows:
The Bank Guarantee which has been furnished to the ACASH for a sum of Rs. 32,00,000 may be invoked by the ACASH unless the entire supplies are made by the supplying agency to the satisfaction of Govt. of Bihar. Performance Gaurantee to the tune of 10% of contractual value has to be furnished by the supplying agency.
If there are sufficient reasons to do so, the Bank Guarantee will be invoked by the Development Commissioner for Handlooms, Ministry of Textiles, Govt. of India.
5. The relevant excerpts from the bank guarantee necessary for adjudication of the dispute reads as follows:
Now this indenture witnessth as under
1. We, Central bank of India, Guwahati Branch (Name of the bank) do hereby undertake to pay the amount due and payable under this gurarantee to the beneficiary without any demure, merely on demand from ACASH stating that the amount claimed is due by way of loss or damage caused to or would be caused to or suffered by ACASH by any reason or breach by the said society of any terms and conditions contained in the said agreement or by reason of Society’s failure to perform the said guarantee. Any such demand made on the bank shall be conclusive as regards the amount due and payable by the bank under this guarantee. However, the liability of the bank under this guarantee shall be restricted to an amount not exceeding Rs. 32.00 lakh (Rupees thirty two lakh).
6. It would appear from Clause 12 as well as the bank guarantee that there must be sufficient reasons for invocation of the bank guarantee and it must be stated in the letter of invocation that the amount claimed is due by way of loss or damage caused or suffered by the appellant by reason of breach of any of the terms and conditions contained in the said agreement.
7. In the instant case, the Development Commissioner, Government of India by the letter dated 20.10.1997 addressed to the Manager, Central Bank of India, Guwahati expressed their desire to invoke the bank guarantee given by the respondent-Society stating that there are sufficient reasons for invoking the bank guarantee. In the letter dated 20.10.1997 there is no mention of any breach of any of the terms and conditions resulting into loss or damage to the appellant. The provisions in Clause 12 of the agreement and the language couched in the bank guarantee do not require the appellant to indicate the nature of breach or to state in details the loss and damage suffered. What is required is that the letter of invocation must state that the bank guarantee is being invoked on account of loss or damage sustained by the appellant from breach of the terms and conditions of the agreement or by reason of respondent’s failure to discharge their obligation under the agreement. The letter written by the Development Commissioner is silent in respect of the loss or damage and breach of any of the terms and conditions. It also does not contain anything about the dissatisfaction of the Bihar Government to the supplies made by the respondent. Therefore, the letter issued by the Development Commissioner cannot be said to have been in compliance of the requirements indicated in the bank guarantee.
8. We have gone through the decision in Daewoo Motors India Ltd. v. Union of India and Ors. . The judgment was delivered in the context of a dispute arising out of an unconditional bank guarantee. The decision indicates that the bank cannot have valid resistance for invocation of an unconditional and absolute bank guarantee. The bank guarantee in the case at hand is a conditional one. In case of a conditional bank guarantee, the beneficiary cannot have unfettered right to invoke the bank guarantee. Depending upon the facts, the Court can issue injunction against invocation of a conditional bank guarantee. The question would have been altogether different had the bank guarantee in dispute been unconditional. In such a case, the Bank cannot have any valid resistance except on the ground of fraud. Ref. Hindustan Construction Co. Ltd. v. State of Bihar and Ors. ).
9. A plain reading of the bank guarantee shows that it is a conditional one and the Development Commissioner sought to invoke it without following the rigors of the procedure indicated in the bank guarantee itself. The learned Court below having noticed the deficiencies in the letter of invocation decided to interfere by issuing injunction restraining the appellant from encashing the bank guarantee till disposal of the arbitral proceeding pending between the parties. We do not find any reason to interfere with the impugned order.
10. In the result, the appeal is dismissed.