JUDGMENT
1. The plaintiff is theappel-lant. The suit is one for permanent injunction restraining the 1st defendant from enforcing a Bank guarantee executed by, the 2nd defendant. Along with the suit, a temporary injunction application was also moved. This application was dismissed and the plaintiff has come up in appeal.
2. The plaint allegations, in brief, arc as follows:
The plaintiff — a registered partnership firm — was appointed as a dealer of the 1st defendant-company to sell T.V. seis in Karnataka. Since the 1st defendant demanded bank guarantee, the bank, the 2nd defendant herein, executed an irrevocable bank guarantee for an amount of Rs. 5,00,000/-. It is alleged by the plaintiff that the 1st defendant supplied 100 T.V. sets, out of which 90 were defective. The plaintiff had paid Rupees I,78,000/- but did not release the. balance since the 1st defendant did not rectify the defective T.V. sets. The plaintiff undertook to release the balance amount if the T.V. sets are set right. At that stage, the plaintiff came to know that the 1st defendant has approached the 2nd defendant to encash the bank guarantee, whereupon the suit was filed.
3. The 1st defendant denied the contention of the plaintiff and contended that the plaintiff had taken delivery of goods worth Rs. 5,12,149-40, that he was to pay a balance sum of Rs, 3,80,615/-, that despite several demands, the balance was not paid and that it is thereafter, the 1st defendant informed the plaintiff that they will enforce the bank guarantee. It was pointed out that the bank guarantee executed was irrevocable and, therefore, the plaintiff cannot seek for the relief now prayed for in the suit and the I.A.
4. The trial court, after consideration of the respective contentions of the parties, vacated the injunction granted by it earlier against enforcement of the bank guarantee.
5. Sri Shekar Shetty, learned counsel for the appellant, has argued at length on the maintainability of the relief of injunction sought. On the other hand, Sri L. S. Harsha Kumar Gowda, learned counsel for respondent No. 1, has opposed the prayer.
6. The bank guarantee executed by the 2nd defendant is an irrevocable bank guarantee. As can be seen from the document, it is a contract between the 1st defendant and the 2nd defendant. When the 1st defendant seeks its enforcement, the 2nd defendant shall honour the same without contest, demur or protest and without questioning the legal relationship existing between the 1st defendant and plaintiff. Prima facie, therefore, the plaintiff on whose behalf the bank guarantee was executed cannot maintain any action restraining the 1st defendant from enforcing the contract.
7. Sri Shekar Shetty, learned counsel for the appellant, brought to my notice that in the event the action of the 1st defendant in encashing the bank guarantee is vitiated by fraud and it is shown that it will cause irretrievable injury to the plaintiff, then, the Civil Court is competent to grant the relief of injunction. 1 have been taken through the averments in the plaint. The plaintiff has not made out any allegation as required under O. 6, R. 4 of the C.P.C. to attract the plea of fraud. As rightly noticed by the Court below, the plaintiff has not pleaded anywhere that the 1st defendant has committed a fraud on him. Nor does there exist any irretrievable injury that the plaintiff might suffer. According to the plaintiff, the 1st defendant has supplied defective T.V. sets and has not taken steps to set-right the same. Such conduct cannot be said to cause ‘irretrievable’ injury to the plaintiff. First of all the allegations have to be proved. Mere recital thereof does not take us anywhere.
8. This takes us to the decision of the Supreme Court in Svenska Handelsbanken v. M/s. Indian Charge Chrome, . The following passage will clearly illustrate the above position. While considering the case of fraud and irretrievable injury that may be suffered by enforcing the bank guarantee, the Supreme Court stated as follows (para 98, at p. 4031 of AIR SCW):
“100. The High Court was also in error in considering the question of balante of convenience. In law relating to bank guarantees, a party seeking injunction from encashing of bank-guarantee by the suppliers has to show prima facie case of established fraud and an irretrievable injury. Irretrievable injury is of the nature as noticed in the case of Itek Corporation (566 Federal Supplement 1210) (supra)…..” (Underlining for emphasis)
As regards irretrievable injury, the Supreme Court deals thus (para 81, at p. 4027 of AIR SCW):
“83. Mr. Venugopat, learned counsel for the borrower referred us to the decision in Itek Corporation v. The First National Bank of Boston etc. by the United States District Court, Massachussets reported in 566 Federal Supplement 1210, particularly observations at page 1217, which read thus :
“Because I find that Itek has demonstrated that it has no adequate remedy at law, and because I find that the allegations of irreparable harm are not speculative, but genuine and immediate, I am satisfied that Itek will suffer irreparable harm if the requested relief is not granted.”
The materials on record do not disclose established fraud. It is also not demonstrated what the irreparable harm that the plaintiff will suffer. It is also not shown that the plaintiff has no other remedy except the one now pursued. The apprehension expressed by the appellant is speculative and not real.
9. The following observation of the Supreme Court in the decision in G. E. T. Services Company Inc. v. M/s, Punj Sons(P) Ltd., , would also highlight the above aspect (at pp. 1998-99 of AIR) :
“9. The question is whether the Court was justified in restraining the bank from paying !o GETSCO under the bank guarantee at the instance of respondent No. 1. The law as to the contractual obligations under the bank guarantee has been well settled in a catena of cases. Almost all such cases have been considered in a recent judgment of this Court in U. P. Co-operative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd., , wherein Sabyasachi Muk’herji, J., as he then was, observed (at p. 189): ‘that in order to restrain the operation either of irrevocable letter of credit or of confirmed letter of credit or of bank guarantee, there should be serjous dispute and there should be good prima facie case of fraud and special equities in the form of preventing irretrievable injustice between the parlies. Otherwise, the very purpose of bank guarantees would be negatived and the fabric of trading operations will get jeopardised’. It was further observed that the bank must honour the bank guarantee free from interference by the Courts. Otherwise, trust in commerce internal and international would be irreparably damaged. It is only in. exceptional cases that is to say in case of fraud or in case of irretrievable injustice, the Court should interfere. In the concurring opinion one of us (K. Jagannatha Shetty, J.) has observed that whether it is a traditional bond or performance guarantee, the obligation of the bank appears to be the same. If the documentary credits are irrevocable and independent, the bank must pay when demand is made. Since the bank pledges its own credit involving its reputation, it has no defence except in the case of fraud. The bank’s obligations of course should not be extended to protect the unscrupulous party, that is, the party who is responsible for the fraud. But the banker must be sure of his ground before declining to pay. The nature of the fraud that the Courts talk about is fraud of an “egregious nature as to vitiate the entire underlying transaction”. It is fraud of the beneficiary, not the fraud of somebody else.”
10. The counsel for the appellant then contended that the bank guarantee was executed as a condition for being appointed as a dealer and it has no relation to the value of the goods supplied or purchased. If there is any default in paying the bill, the 1st defendant can claim only interest on the delayed payment. In this behalf the following clause in the order appointing the plaintiff as the dealer may be noticed :
“2. You will arrange for a bank guarantee for Rs. 5 lakhs based on the value.”
(underlining for emphasis)
The expression “based on the value” means the value of the goods purchased. Therefore, the bank guarantee executed is for the value of the goods purchased. Admittedly, the plaintiff has taken delivery of 100 T.V. sets and has not paid its full value. There are disputes regarding this aspect of the case, but nevertheless the fact remains that money is due to the 1st defendant on this head. If so, clearly the bank guarantee executed represents the value of the articles thus supplied. Therefore, prima facie, there is no force in the contention of the plaintiff that the bank guarantee was executed by way of condition for appointing as a dealer and in default of payment of value of goods supplied, it cannot be enforced.
11. The plaintiff has highlighted the fact that the 1st defendant has instituted a suit as O.S. No. 6146/89 for recovery of the value of the above referred 100 T.V. sets. The suit is allegedly pending. May be in that suit the plaintiff herein can move for any appropriate order to safeguard his interests. But that question need not be and cannot be gone into here. All that I need say is that the disposal of the present I.A. and the appeal will not disable the plaintiff from seeking appropriate relief in that suit if he is otherwise legally entitled.
12. There are no merits in this appeal, The same is dismissed, but without costs.
13. Appeal dismissed.