JUDGMENT
M.S.A. Siddiqui, J.
1. The plaintiff has filed the present suit for declaration and permanent injunction restraining the defendant No. 3 from encashing Bank Guarantee Nos.8201 & 8202. Alongwith the plaint the plaintiff has also filed an application under Order 39, Rules 1 and 2, C.P.C. for ad interim injunction.
2. Facts, relevant and requisite for the disposal of the present application, lie in a narrow compass. On 10.1.1995, the plaintiff entered into a contract with defendant No. 3 for supply of the following materials:
(a) ACSR Bersimis Conductor …3435 kms.
(b) 7/3.66 mm G.S.Earthwire ….575 kms.
3. The contract was to be completed by 31.1.1998 (it was extended subsequently upto 30th September, 1998). Plaintiff was also required to furnish two Bank guarantees, one for due delivery of the contracted materials and the other for the advance price to be paid by defendant No. 3 to plaintiff. In accordance with the terms of the contract, defendant No.4-Bank (Bank of Tokyo) gave Advance Payment Bank Guarantee No. LG/612/8201 and the Performance Bank Guarantee No. LG/612/8202, dated 22.2.1996. On 24.10.1997, defendant No. 3 invoked the said bank guarantees vide letter dated 24.10.1997.
Since defendant No. 4-Bank did not pay the amount under the Bank guarantees, defendant No. 3 filed a complaint (No. 308/97-98) before the Banking Ombudsman, Maharashtra. By the order dated 23.3.1998, the Banking Ombudsman gave his award advising defendant No. 4 Bank to pay to defendant No. 3 the amounts of the Bank Guarantees No. LG 612/8201 and LG 612/8202 for US dollars 1473090 and US dollars 1473091 respectively together with a sum of Rs. 10 lakhs towards the claim of interest and expenses incurred by the defendant No. 3. Aggrieved by the invocation of the Bank guarantees and the
award dated 23.3.1999 of the Banking Ombudsman, plaintiff has filed the present suit for declaration and permanent injunction restraining defendant No. 3 from encashing the Bank guarantees. The plaintiff has also challenged the validity of the award dated 23.3.1999 given by the Banking Ombudsman.
4. Caveator (defendant No.3) has opposed the application filed by the plaintiff under Order 39, Rules 1 and 2, C.P.C. The question that arises for consideration is that whether the plaintiff has made out a strong prima facie case of irretrievable injustice by proof of special equities or fraud so as to invoke the jurisdiction of this Court by way of injunction to restrain the defendant No. 3 from encashing the Bank guarantees in question.
5. The law as to the contractual obligations under the Bank guarantee has been well settled in catena of cases decided by the Apex Court. Reference may in this connection be made to the decisions of the Supreme Court in Saw Pipes Limited Vs. Gas Authority of India Ltd. & Anr., 78(1998) DLT 12 (SC); U.P. Cooperative Federation Ltd. Vs. Singh Consultants and Engineers (P) Ltd., (1998) 1 SCC 174; General Electric Technical Services Company INc.
Vs. Punj Sons (P) Ltd. and Another, ; Svenska Handelsbanken Vs. M/s. Ind Charge Chrome & Ors., (1994) 1 SCC 502; National Thermal Power Corporation Ltd. Vs. Flowmore Pvt. Ltd. & Another, ; Hindustan Steel Workers Construction Ltd. Vs. G.S. Alwal & Co. (Engineers) Pvt. Ltd. ; Ansal Engineering Project Ltd. Vs. Tehri Hydro Development Corporation Ltd. & Anr., ; Hindustan Steel works Construction Ltd. Vs. Tarapore & Co. & Anr., ;
U.P. State Sugar 568; Dwarikesh Sugar Industries Ltd. Vs. Prem Heavy Engineering Works (P) Ltd., & Another, ;
ITC Ltd. Vs. Debt Recovery Appellate Tribunal & Ors., . It may be convenient to summarise the following legal principles enunciated by their Lordships of the Supreme Court in the a fore cited authorities:
(i) A Bank guarantee is an independent and distinct contract between the beneficiary and the Bank and the right and obliga tions therein are to be determined on its own terms.
(ii) 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 dispute between the beneficiary and the person at whose instance the Bank had issued the Bank guarantee;
(iii) Commitments of the Banks must be honoured free from inter ference by the Court. Otherwise trust in commerce internal and international would be irreparably damaged;
(iv) An irrevocable commitment either in the form of confirmed Bank guarantee or irrevocable letter of credit cannot be inter fered with except in case of established fraud of an egregious nature as to vitiate the entire underlying contract; or in case of special equities in the form of preventing irretrievable injustice between the parties as noticed in the case of Itek Corporation, Vs. The First National Bank of Boston etc., (566 Fed
Supp. 1210)
(v) Allegations of irretrievable injustice must be genuine and immediate as well as irreversible.”
6. In the present case, temporary injunction against encashment of the Bank guarantees has been sought on the following grounds.
(a) that defendant No.3 owes several crores of rupees of plaintiff for materials supplied to them;
(b) that plaintiff, at the instance of defendant No. 3, procured contracted materials worth more than 3 crores. Without giving credit to the huge amount spent by plaintiff, defendant No.3, fraudulently invoked the Bank guarantees with intent to cause irretrievable injustice to plaintiff and unjustly enriching themselves at the cost of plaintiff;
(c) that if defendant No.3 is allowed to encash the Bank guarantees, it would practically ruin plaintiff’s business;
(d) that even after invocation of the Bank guarantees, defendant No. 2 extended the contract upto September, 1998 and so invoca tion of the Bank guarantees during subsistence of the contract is invalid;
(e) that the delayed performance of the contract was due to force
majeure and thus Bank guarantees ought not to have been invoked by defendant No.3:
(f) that the Banking Ombudsman had no jurisdiction to interfere in the matter and so the award dated 23.3.1999 is invalid and inoperative.
7. In my oinion, none of the factors mentioned above is sufficient to make the present case an exceptional one justifying interference of this Court by restraining defendant No.3 from encashing the Bank guarantees, which are unconditional and irrevocable with absolute discretion to defendant No. 3 to invoke them. Relevant portions of the Bank guarantees are as under:
“Bank guarantee No. LG/612/8201”
We, The Bank of Tokyo Ltd. having its Head Office at Tokyo, Japan (hereinafter referred to as the “Bank” which expression shall, unless repugnant to the context or meaning thereof, include its successors, administrators, executors and assigns) do hereby guarantee and undertake to pay the PURCHASER, immediately on demand any or, all monies payable by the contractor to the extent of US$ 1,473,090.00 at any time upto 31.01.97 without any demur,
reservation, context, recourse or protest and/or without any reference to the contractor. Any such demand made by the purchaser on the Bank shall be conclusive and binding notwithstanding any difference between the PURCHASER and the contractor or any dispute pending before any Court, Tribunal, Arbitrator or any other authority. We agree that the guarantee therein contained shall be irrevocable and shall continue to be enforceable till
the PURCHASER discharges this guarantee.”
Bank Guarantee No. LG/612/8202
Therefore we hereby affirm that we are Guarantee and responsible to you, on behalf of the supplier, upto a total of US$ 1,473,091.00 + INR 9,88,068/- (US Dollar one million four hundred and seventy three thousand and ninety one only + Rupees nine lakhs eighty eight thousand and sixty eight only) and we under take to pay you, upon your first written demand declaring the supplier to be in default under the Contract and without caveat or argument any sum or sums within the Limits of US$ 1,473,091.00 + INR 9,88,068/- (US dollar one million four hundred and seventy three thousand and ninety one only + Rupees nine lakhs eighty eight thousand and sixty eight only) as aforesaid without your
needing to prove or to show ground or grounds or reason for your demand or the sum specified therein.”
8. It would be appropriate to pause here and clarify a doubt which one may entertain with regard to the jurisdiction of the Banking Ombudsman to interfere in such matters. On a bare reading of the terms of the Bank
guarantees, it becomes clear that enforcement of the Bank guarantees was not dependent on intervention of the Banking Ombudsman and defendant Bank was bound to honour its commitment under the Bank guarantees. That apart,
the Banking Ombudsman has merely advised the defendant Bank to honour its commitment under the Bank guarantees. It is also significant to mention that the Banking Ombudsman has also advised the defendant Bank to pay to defendant No. 3 an additional amount of Rs. 10 lacs by way of interest for which learned Counsel for defendant No. 3 gave an undertaking to the effect that without prejudice to the rights and contentions of the defendant No.3, the said additional amount shall not be recovered during pendency of the present suit.
9. As regards the plea of unjust enrichment, it has been held by the Apex Court in Dwarikesh Sugar Industries Ltd. (supra) that in encashment of the Bank guarantee the applicability of the principle of unjust enrichment has
no application.
10. Learned Counsel for plaintiff has strenuously urged before me that even after invocation of the Bank guarantees, the contract was extended, upto September, 1998 and so invocation of the Bank guarantees during subsistence of the Contact is invalid. The submission of the learned Counsel deserves to be repelled as I do not find any term or condition in either of the Bank guarantees prohibiting defendant No.3 from encashing it during subsistence of the contract. As noticed earlier, the Bank guarantees are unconditional and irrevocable. A Bank guarantee which is payable on demand implies that the Bank is bound to pay as and when a demand is made upon the bank by the beneficiary. The Bank is not concerned with any inter se dispute between the beneficiary and the person at whose instance the Bank had issued the bank guarantee. It is also significant to mention that even after invocation of the Bank guarantees, defendant No. 3 requested plaintiff to extend the advance Bank guarantee upto 30.9.1998 and the contract performance guarantee upto 31.3.2000 but plaintiff refused to extend the same. An attempt has been made by plaintiff to justify the said refusal on the ground that extension of the Bank guarantees was demanded in a format which was not in accordance with the format of the World Bank. Prima facie, the explanation offered by plaintiff for non-extension of the Bank guarantees does not appear to be plausible one. In this view of the matter, it cannot be said that invocation of the Bank guarantees by defendant No.3 was invalid.
11. Learned Counsel for plaintiff further contended that defendant No.3 owes several crores of rupees to plaintiff for the materials supplied to them. Plaintiff, at the instance of defendant No.3, has also procured contracted materials worth more than 3 crores and even after that defendant No.3 had fraudulently and dishonestly invoked the Bank guarantees. It needs to be highlighted that plaintiff has already invoked the arbitration clause of the agreement and an application under Section 11 of the Arbitration and Conciliation Act has been filed in this Court for appointment of an Arbitrator to adjudicate upon the disputes between the parties in respect of the contract in question. That being so the entire dispute between the parties regarding performance of the contract will be decided by the Arbitrator. The defendant Bank is not concerned with the outstanding amount, if any, payable by defendant No.3 to the plaintiff. The right to recover the amount under the contract has no relevance to the liability of the defendant Bank under the guarantee. The liability of the defendant Bank remained intact irrespective of any dispute between plaintiff and defendant No.3 in respect of the contract in question. The demand of defendant No.3 is under the Bank guarantees as per the terms thereof. The encashment of Bank guarantees cannot be made subject to the claims and counter claims arising out of the main contract between the parties. Thus, the defendant Bank cannot be interdicted by this Court at the instance of plaintiff in the absence of fraud or special equities in the form of preventing irretrievable injustice between plaintiff and defendant No.3.
12. It is significant that plaintiff has not assailed invocation of the Bank guarantees on the ground of fraud. The main contract, pursuant to which the Bank guarantees were issued, was not sought to be avoided by alleging fraud, nor was it at any point of time alleged that the Bank guarantees were issued because any fraud had been practised by defendant No.3. The disputes between the parties regarding performance of the contract cannot make invocation of the Bank guarantees fraudulent. Under the terms of the contract, plaintiff was required to give unconditional Bank guarantee against advance payments and also a similar Bank guarantee for due delivery of the contracted material within the stipulated period. In the absence of any fraud, defendant No.3 is entitled to encash the Bank guarantees.
13. It is also not possible to accept contention of the learned Counsel for plaintiff that there would be irretrievable injustice to the plaintiff if the bank guarantees are allowed to be encashed. As stated earlier, plaintiff has already filed an application under Section 11 of the Arbitration and Conciliation Act for referring the disputes between the parties to arbitration. If the arbitral Tribunal makes an award in favour of plaintiff, the amount of such an award can be recovered from defendant No.3 by ay of restitution. That being so, there is not a situation of the kind as noticed in the case of ITEK Corporation (supra), where there was no possibility whatsoever of recovery of any amount from the purchaser. In the present case there is a good possibility of such recovery from the beneficiary by way of restitution.
14. For the foregoing reasons, I am of the opinion that the plaintiff had failed to make out a prima facie case for grant of a temporary injunction to restrain the defendant No.3 from encashing the Bank guarantees in question. Consequently, the application is dismissed. Before I part with this order, I would like to make it clear that nothing stated herein shall affect the rights of the parties that may be agitated in the suit.
Application dismissed.
