{"id":269781,"date":"1993-10-15T00:00:00","date_gmt":"1993-10-14T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/svenska-handelsbanken-vs-indian-charge-chrome-dayal-j-on-15-october-1993"},"modified":"2016-12-08T17:59:08","modified_gmt":"2016-12-08T12:29:08","slug":"svenska-handelsbanken-vs-indian-charge-chrome-dayal-j-on-15-october-1993","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/svenska-handelsbanken-vs-indian-charge-chrome-dayal-j-on-15-october-1993","title":{"rendered":"Svenska Handelsbanken vs Indian Charge Chrome (Dayal, J.) on 15 October, 1993"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Svenska Handelsbanken vs Indian Charge Chrome (Dayal, J.) on 15 October, 1993<\/div>\n
Equivalent citations: 1994 AIR 626, 1994 SCC (1) 502<\/div>\n
Author: Y Dayal<\/div>\n
Bench: Yogeshwar Dayal (J)<\/div>\n
           PETITIONER:\nSVENSKA HANDELSBANKEN\n\n\tVs.\n\nRESPONDENT:\nINDIAN CHARGE CHROME (Dayal, J.)\n\nDATE OF JUDGMENT15\/10\/1993\n\nBENCH:\nYOGESHWAR DAYAL (J)\nBENCH:\nYOGESHWAR DAYAL (J)\nVERMA, JAGDISH SARAN (J)\nJEEVAN REDDY, B.P. (J)\n\nCITATION:\n 1994 AIR  626\t\t  1994 SCC  (1) 502\n JT 1993 (6)   189\t  1993 SCALE  (4)124\n\n\nACT:\n\n\n\nHEADNOTE:\n\n\n\nJUDGMENT:\n<\/pre>\n
The Judgment of the Court was delivered by
\nYOGESHWAR DAYAL, J.- Special leave granted.  Heard.\n<\/p>\n
2.This is an appeal by M\/s Svenska Handelsbanken  (defendant\n<\/p>\n
4) against the judgment and order dated October II, 1991  of
\nthe  High Court of Orissa in Misc.  Appeal No. 370  of\t1991
\nwhereby\t the  Single Judge of the High\tCourt  accepted\t the
\nappeal\tfiled  on behalf of the plaintiff  while  injuncting
\ndefendants  4  to  12  from  encasing  the  bank   guarantee
\nfurnished by Industrial Development Bank of India (defendant\n<\/p>\n
12) in favour of defendants 4 to 11 for a period of 2  years
\nor  till the disposal of the suit whichever is\tearlier\t and
\nset aside an order passed by the Subordinate Judge,  Cutback
\ndated  August  14,  1991 vacating an  order  of\t ad  interim
\ninjunction   dated  April  25,\t1991  and   dismissing\t the
\napplication  for ad interim injunction (Misc.  Case No.\t 143
\nof 1991) against defendants 4 to 12.\n<\/p>\n
3.We find it convenient to refer to the parties as they were
\ndescribed in the suit.4.The  suit out of which the  present
\nappeal\tarises\twas  filed  by\tthe  plaintiff\t(hereinafter
\nreferred to as the ‘borrower’) before the Subordinate Judge,
\nCutback,  inter alia for a declaration that  the  guarantees
\nexecuted  by Industrial Development Bank of India  defendant
\n12 hereinafter referred to
\n504<\/span>
\nas  the ‘guarantor’) in favour of defendants 4 and 5  to  11
\n(hereinafter referred to as the ‘lenders’) are void and\t for
\nan order of injunction restraining the guarantor from making
\npayments under the guarantees to the ‘lenders’.\n<\/p>\n
5.For appreciating the submissions made on behalf of  the
\nparties\t the facts shortly stated, leading to the filing  of
\nthe present appeals are as follows.\n<\/p>\n
6.Sometime  in 1982 M\/s Indian Metals & Ferro  Alloys  Ltd.,
\n(in short ‘IMFA’ – defendant 13) issued a global tender\t for
\nsetting\t up a captive power plant, viz. a  coal-fired  steam
\npower plant in Choudwar, Orissa.  The tender indicated\tthat
\ncredit by the suppliers will be preferred.  Defendants 1  to
\n3  (hereinafter\t referred to as\t the  ‘suppliers’  submitted
\ntheir  tenders in this regard.\tSince the  tender  indicated
\nthat suppliers’ credit for the entire project is  preferred,
\nthe suppliers approached defendant 4 (one of the lenders) to
\nfinance\t the project.  Inquiries were made to find  out\t the
\npossibilities  for  financial  assistance  by  the   Swedish
\nGovernment in the form of interest at subsidised rates.\n<\/p>\n
7.Since\t 85 per cent of the foreign exchange  portion  of
\nthe  total  price  of  the  project  was  to  be   financed,
\ndiscussions  were held between the borrower and defendant  4
\n(one of the lenders) for finalising the terms and conditions
\nof  the\t loans.\t  Discussions were  also  held\tbetween\t the
\nborrower  and  the  suppliers in regard\t to  the  terms\t and
\nconditions  of\tthe loans so as to ensure  that\t the  credit
\nagreements would be ‘In accordance with the Swedish Law\t and
\nregulations for subsidised export credit facilities.\n<\/p>\n
8.The  borrower made extensive investigation itself  over  a
\nperiod\tof about two years into the details of the  proposed
\nplant.\t On  or\t about September  28,  1984  contracts\twere
\nentered\t into  between\tthe  borrower  (plaintiff)  and\t the
\nsuppliers  for setting up the power plant and for  supplying
\nthe  machinery\tand other equipments for the  plant  to\t the
\nborrower.\n<\/p>\n
9.Defendant 4 (one of the lenders) formed a consortium of
\nbanks i.e. defendants 5 to 11 (Swedish Banks) (lenders)\t and
\nan  American Bank for financing the project.   The  American
\nBank subsequently assigned its interest in favour of one  of
\nthe  defendant Bank (lender).  The lenders entered into\t two
\ncredit agreements dated October 30, 1984 with the  borrower.
\nThe  credit agreements were entered into by defendant 4\t for
\nitself\tand on behalf of defendants 5 to 11 under which\t the
\nlenders\t agreed to lend 85 per cent of the foreign  exchange
\nportion of the cost of the project to the borrower by way of
\ncertain\t credit facilities.  A third credit agreement  dated
\nNovember  15,  1984  between the borrower  and\tdefendant  4
\n(lender)  in its individual capacity was entered into.\t The
\nfirst two credit agreements were for the loans of US Dollars
\nequivalent of Swedish Kroner 370,855,000 and 239,700,000 and
\nthe  third  was\t for  the loan of  the\tsum  of\t US  Dollars
\n1,754,000.   Two  additional  credit  agreements  were\talso
\nentered\t  ‘Into\t between  the  borrower\t and   the   lenders
\nsupplemental  to the first and second credit  agreements  on
\nDecember  23, 1987 providing for additional loans of 10\t per
\ncent  of the original loans which the borrower\trequired  to
\nfinance\t cost  escalations  caused  by\tdelay.\t These\t two
\nadditional credit agreements were for US Dollars  equivalent
\nof
\n505<\/span>
\nSwedish\t Kroner 37,085,500 and 23,970,000.  All\t the  credit
\nagreements  inter alia purported to provide payments by\t the
\nlenders\t to the suppliers on various documents, as  provided
\nin the credit agreements, being presented to the lenders and
\nalso  against  a  notice of drawdown by\t the  borrower.\t  In
\nrelation  to  the third credit agreement  the  disbursements
\nwere  to be made directly to the lenders in respect  of\t the
\nfinancial  cost\t payable  by the  borrower  upon  notice  of
\ndrawdown by the borrower.\n<\/p>\n
10.The\tloans  were  required  to  be  repaid  by   twenty
\n(subsequently  amended to eighteen) equal  semi-annual\t(six
\nmonthly) consecutive instalments, the number of\t instalments
\nand date of commencement of the instalments being separately
\nprovided  for under each credit agreement.  Repayments\twere
\nrequired  by  the  borrower to be  made\t without  demand  or
\nnotice.\t   It  was  specifically  provided  in\tthe   credit
\nagreements that:\n<\/p>\n
\t      “Any amounts payable by the borrower shall  be
\n\t      paid  without set-off or\tcounter-claim.\t The
\n\t      liability\t of  the  borrower  to\teffect\t any
\n\t      payment\tunder\tthis   Agreement   is\tthus
\n\t      unconditional  and  shall not in\tany  way  be
\n\t      dependent\t  upon\t the  performance   of\t the
\n\t      contracts\t i.e.  the  agreements\tbetween\t the
\n\t      borrower\tand  the suppliers-exporters  or  be
\n\t      affected by any other claim which the borrower
\n\t      may have against the exporters or against\t any
\n\t      other  party (natural or legal)  collaborating
\n\t      with the exporters.\n<\/p><\/blockquote>\n
\t      (These  are the actual words of  the  relevant
\n\t      clause in each credit agreement.)”
\n\t      The credit agreements also provided:
\n\t      “All  disputes arising from the provisions  of
\n\t      this  Agreement  or its performance  shall  be
\n\t      finally settled by arbitration under the Rules
\n\t      of Conciliation  and  Arbitration\t of the
\n\t      International  Chamber  of Commerce  by
\n\t      three arbitrators appointed in accordance with
\n\t      these rules.  Arbitration shall take place  in
\n\t      Stockholm\t and  be conducted  in\tthe  English
\n\t      language.\t The award of the arbitral  tribunal
\n\t      is  final\t and  obligatory  for  the   parties
\n\t      without  any  right for a\t further  appeal  or
\n\t      contestation of its fulfilment.  The  borrower
\n\t      hereby  expressly submits to the\tjurisdiction
\n\t      of the above mentioned arbitration tribunal.
\n\t      (These  are the actual words of  the  relevant
\n\t      clause in each Credit Agreement.)”\n<\/p><\/blockquote>\n
11.The\tcredit agreements also provided that the  borrower
\nshall  furnish\tguarantees  in\tfavour\tof  the\t lenders  as
\nsecurity for the loans covering 100 per cent of each of\t the
\nloans plus interest, costs and fees payable under the credit
\nagreements.  As quoted above, the agreements also  contained
\nan  arbitration clause which contemplates  disputes  arising
\nfrom  the  agreements to be finally settled  by\t arbitration
\nunder  the  Rules  of Conciliation and\tArbitration  of\t the
\nInternational  Chamber\tof  Commerce  by  three\t arbitrators
\nappointed  in accordance with these rules.  The\t arbitration
\nis provided to take place at Stockholm.\n<\/p>\n
12.It  is thus prima facie clear from the aforesaid  terms
\nof the credit agreements with the borrower that the  lenders
\nare, as a matter of law and
\n506<\/span>
\nexpress\t agreement,  in no way connected or  related  to  or
\ndependent  upon\t the  contracts\t entered  into\tbetween\t the
\nborrower and the suppliers.  At the instance of defendant 4,
\ndefendant 12 provided the bank guarantee for the payments to
\nbe  made  by lenders to the suppliers.\tIn order  to  ensure
\nthat  the guarantor would be liable in all circumstances  in
\nthe  event  of\tthe  borrower  failing\tto  carry  out\t its
\nobligations,  the lenders insisted that the guarantees\tvery
\nclearly\t made  express provision to be\tunconditional  first
\ndemand\tguarantees  which were insulated from  any  possible
\ndispute between the borrower and the suppliers and even\t the
\nborrower and the lenders.  In fact the form of guarantee was
\nitself enclosed as an appendix to each credit agreement.\n<\/p>\n
13.The\tterms of payment contained in the contracts  between
\nthe borrower and defendants 1 and 2 (suppliers) which  deals
\nwith  disbursement  of\tlast 5 per cent\t of  the  respective
\ncontract price reads thus:\n<\/p>\n
\t      “5 per cent of the contract price at the\tdate
\n\t      of  the purchasers’ taking over of  the  Power
\n\t      Plant  against presentation of a\ttaking\tover
\n\t      certificate, issued by the purchaser, however,
\n\t      not  later than 35 months after the date\tthis
\n\t      contract\thas come into force unless the\tdate
\n\t      of  taking over is delayed due to reasons\t for
\n\t      which the supplier is responsible.”\n<\/p><\/blockquote>\n
Defendant 4 (lender) was to disburse the balance 5 per\tcent
\npayment to defendants 1 and 2.\n<\/p>\n
14.On June 24, 1989 the plaintiff (borrower) took over the
\nplant and on June 25, 1989 issued a taking over certificate.
\nOn  July  28, 1989 the plaintiff authorised defendant  4  to
\ndisburse the balance 5 per cent of the payment to  defendant
\n3 as well.\n<\/p>\n
15.It is common case that the amounts due to the suppliers
\nwere paid by the lenders on instructions from the  borrower,
\nplaintiff  and the suppliers have been paid in full  by\t the
\nlenders.  After the issuance of the take over certificate by
\nthe  plaintiff, three instalments of payments were  made  by
\nthe  guarantor\ton  behalf of the  plaintiff  as  per  their
\ninstructions vide payments dated October 31, 1989; April 30,
\n1990  and  October  31,\t 1990 under  the  first\t two  credit
\nagreements   of\t  the  sum  of\tUS   Dollars   9,033,324.47;
\n8,810,563.87   and  8,681,062.40  towards   principal\tplus
\ninterest.\n<\/p>\n
16.Again   the\t three\tinstalments  were  paid\t  by   the
\nIDBI\/guarantor\tunder  the third agreement  on\tOctober\t 15,
\n1989;  May  15, 1990 and November 15, 1990 amounting  to  US
\nDollars\t  301,339.99;  278,468.14  and\t270,778.54   towards
\nprincipal plus interest.\n<\/p>\n
17.It was on or about April 28, 1991 that the present suit
\nwas filed by the plaintiff for : (a) a declaration that\t the
\ntaking over certificate dated June 25, 1989 is void\/voidable
\ninstrument and the same may be delivered and cancelled;\t (b)
\nit  be\tfurther declared that the plaintiff is\tentitled  to
\ndiminution\/extinction  of price towards the power  plant  as
\nmentioned in Annexure ‘A’ to the plaint, in the alternative,
\nif the court finds, that any amount is payable to defendants
\n1  to  11 jointly or severally, the same be directed  to  be
\npaid  as  per reschedule of payment to be  calculated  on  a
\ncash-\n<\/p>\n
507<\/span><\/p>\n
flow  basis on actual generation as determined\ton  inquiry;\n<\/p>\n
(c)  a\tdecree of declaration that the\tguarantees  obtained
\nfrom  defendants  12  and  13 by  defendants  1\t to  11\t are
\nvoid\/voidable  instruments  and ought to  be  delivered\t and
\ncancelled; (d) a decree of perpetual injunction\t restraining
\ndefendants  12 and 13 from making payments dated  April\t 30,
\n1991 and payments filling due on subsequent dates under\t any
\nguarantee to defendant 4 and\/or defendants 4 to 11; and\t (e)
\na decree of perpetual injunction restraining defendants 4 to
\n11  from  recalling the loan and\/or taking  any\t steps\tfrom
\nrecovering  the\t said loan either in full or in\t part,\tetc.
\netc.\n<\/p>\n
18.The basis of the plaintiff’s claim against defendants 1
\nto 12 was that defendants 1 to 3 had promised to supply\t the
\ncaptive\t power plant of the capacity of 108 MW\tworked\twith
\nteacher\t coal whereas on working, the plant was found to  be
\nof the capacity of 60 MW.  The case of the plaintiff further
\nwas  that  all the agreements between the borrower  and\t the
\nsuppliers  and borrower and lenders are\t interconnected\t and
\nconstituted  one  transaction  and  are\t vitiated  by  fraud
\ncommitted  by  defendants 1 to 4. It was  pleaded  that\t the
\nplaintiff  was fraudulently led into entering  of  contracts
\nwith  the suppliers by fraud of the suppliers and  defendant
\n4,  the lender.\t The suppliers were not competent enough  to
\nmanufacture  108 MW plant.  They fraudulently persuaded\t the
\nplaintiff to go in for a ‘stoker fired’ boiler instead of  a
\n‘pulverised fuel’ boiler in spite of the recommendations  of
\nthe  Central  Electricity Authority to\tthe  contrary.\t The
\nrepresentatives\t  of   the   consortium\/suppliers    visited
\nBhubaneshwar  and Choudwar in the second week of March\t1983
\nand during discussions represented to the plaintiff that the
\nrecommendations\t of the Central Electricity  Authority\twere
\nnot correct and that their vast experience in this field had
\nshown  that  ‘stoker  fired’ boilers  were  preferable\tover
\n‘pulverised fuel’ boilers in the instant case, with  talcher
\ncoal  as  the  basic raw material.  The defendants  1  to  3
\nfurther\t represented that they had arranged credit  facility
\nfor the proposed captive power plant through defendant 4  at
\na  very\t low interest rate and specifically  indicated\tthat
\ntheir  offer was limited to the setting up of  only  ‘stoker
\nfired’\tboilers.  It was further alleged in the plaint\tthat
\nthe  plaintiff relying on the judgment,\t representation\t and
\nadvice\tgiven  by  the suppliers decided to  go\t ahead\twith
\nsetting\t up of the power plant although Central\t Electricity
\nAuthority and other advisors had expressed reservations that
\nthe boilers of the size as suggested by the suppliers  would
\nbe less effective.  Since the plaintiff had never undertaken
\nand  were unaware of the technology\/expertise  required\t for
\nthe setting up of the captive power plant they had no  other
\noption\/altemative but to rely totally upon the skill of\t the
\nsuppliers  in  this  regard.  It was  further  pleaded\tthat
\nsubsequently  in August 1983 with a view to  further  induce
\nthe  plaintiff\tto  act\t on  the  representations  made\t  by
\nconsortium  that the suppliers were capable of setting up  a
\n108  MW\t plant with ‘stoker fired’ boiler,  defendant  4  on
\nbehalf\tof  itself  and defendants 5 to\t 11  approached\t the
\nplaintiff directly and represented that the said defendant 4
\nwould  finance the project of setting up the  captive  power
\nplant at a very low interest rate if the plaintiff  accepted
\nthe offer of suppliers for supply, erection
\n508<\/span>
\nand  commission\t of  the  said\tplant  with  ‘stoker  fired’
\nboilers.    It\t was  alleged  that  defendant\t 4   further
\nrepresented  to\t the plaintiff that the\t suppliers  are\t the
\nvalued clients of defendant 4 and that defendant 4 was aware
\nof the background and experience of the suppliers.\n<\/p>\n
19.It was pleaded that defendant 4 along with defendants 1
\nto  3  prepared a feasibility report for setting up  108  MW
\nplant.\t  The  feasibility  report  was\t prepared   on\t the
\nassumptions   (a)  a 108 MW  plant  shall  be  established
\nguaranteeing  a minimum generation of 700 million  units  of
\nelectricity  per  year\tand (b) raw material  used  will  be
\ntalcher\t  coal.\t   The\t feasibility   report\tspecifically
\nenumerated and set out a cash-flow statement which was based
\non  an assumption that 700 million units would be  generated
\neach  year.  Based on this assumption a cash-flow  statement
\nwas prepared on the basis of generation of a minimum of\t 700
\nmillion\t units\tper  year which was with  the  knowledge  of
\ndefendants  1  to  4 and the  plaintiff\t was  informed\tthat
\ngeneration at 700 million units per annum would be the basis
\nof  the repayment schedule to be adopted for  defraying\t the
\nproposed  loans\t to  be given by defendant 4  on  behalf  of
\ndefendants 4 to 11 in twenty (which was later on reduced  to
\neighteen) half-yearly instalments.\n<\/p>\n
20.It was further pleaded that defendant 4, in fact, acted
\nas a representative or an agent of defendants 1 to 3. It was
\nalso  pleaded  that  in fact the supply\t of  the  plant\t and
\nfinancing thereof through deferred credit was one  composite
\ntransaction in which defendant 4 was integrally involved and
\ninterconnected as defendants 1 to 3. It was pleaded that the
\nplaintiff   relying   upon  the\t representations   made\t  by
\ndefendants  1  to  3  and  4  entered  into  three  separate
\ncontracts  with\t the  suppliers on September  28,  1984\t for
\nerection and commissioning of the captive power plant.\n<\/p>\n
21.It is not necessary at this stage to elaborately  refer
\nto  the\t terms and conditions of the  suppliers’  agreements
\nwith  the borrower except to mention that  under the  first
\ncontract, defendant I had agreed to supply turbine and other
\naccessories for a total consideration of Swedish Kroner\t 432
\nmillion; under the second contract between the borrower\t and
\ndefendant 2, defendant 2 had agreed to supply 4 ‘chain grate
\nstoker\tfired’ boilers with other accessories and under\t the
\nthird  contract defendant 3 agreed to erect  and  commission
\nthe captive power plant.  The third agreement in clauses 12.
\n1, 12.2, 12.7 and 13.1 provided as under:\n<\/p>\n
\t      ”\t 12.1.\tTaking\tover.- The  plant  shall  be
\n\t      deemed   to  have\t been  taken  over  by\t the
\n\t      purchaser\t at  the  time\twhen  the  Tests  on
\n\t      Completion  have shown that the Plant has\t the
\n\t      operational    characteristics\twhich,\t  in
\n\t      accordance with the Agreement, it should\thave
\n\t      at  the  time  of taking over,  and  when\t the
\n\t      Contractor has fulfilled all other obligations
\n\t      to be performed by him under the terms of\t the
\n\t      Agreement before taking over the Plant.
\n\t      12.2.Taking over Certificate.- The  purchaser
\n\t      shall  issue a certificate to  confirm  taking
\n\t      over in accordance with clause 12. 1.\n<\/p><\/blockquote>\n
\t      509<\/span><\/p>\n
\t      12.7Performance  Testing.-  Taking  over\tof
\n\t      Plant as above does not relieve the Contractor
\n\t      from  carrying  out  Performance\tTesting\t  in
\n\t      accordance with Section 13.\n<\/p><\/blockquote>\n
\t      13.1.  Time  point  for  determination   of
\n\t      performance.-  Determination  of\twhether\t the
\n\t      Plant   has   the\t  performance\tand    other
\n\t      characteristics as guaranteed in the agreement
\n\t      shall   be  done\twhen  the  Plant   undergoes
\n\t      Performance Testing.”\n<\/p><\/blockquote>\n
22.That an agreement was also signed on September 28, 1984
\nbetween\t the  plaintiff\t and  defendant\t 3  wherein  it\t was
\nspecifically guaranteed that the said plant would be 108  MW
\nplant  and  capable of producing a minimum of  1400  million
\nunits of electricity over a period of 2 years.\tThe loan was
\nrequired to be repaid as per the agreement by 20 equal semi-
\nannual\tconsecutive instalments, the first six months  after
\nthe taking over date, but in no case later than February  1,
\n1988.  (Later  on changed to October  1988  and\t instalments
\nreduced to 18 half-yearly instalments.)\n<\/p>\n
23.The\tborrower also undertook to furnish to defendant\t 4
\nthe  guarantee in favour of the lenders as security for\t the
\nloan  covering\t100  per cent of  the  loan.   As  mentioned
\nearlier\t the plaintiff furnished the guarantee of  defendant
\n12  to\tdefendant 4 (defendant 4 acting for  itself  and  on
\nbehalf\tof  defendants 5 to 11) to  guarantee  repayment  of
\nloans given by defendants 4 to 11.  Defendant 12 in turn was
\nprovided a guarantee by defendant 13.\n<\/p>\n
24.We\tmay  mention  that  defendant  12  furnished   the
\nguarantees  as\tper  directions\t of this  Court\t on  a\twrit
\npetition being filed by the plaintiff to direct defendant 12
\nto  furnish  the  guarantees in relation  to  the  aforesaid
\ncontracts.  The guarantor made payment of 15 per cent of the
\ncontract  price immediately and as stated earlier made\tsome
\npayments  to  the lenders before and after the\ttaking\tover
\ncertificate.\n<\/p>\n
25.It was further pleaded in the plaint that defendants\t 1
\nto  3 on May 29, 1989 conducted a test on completion of\t the
\ncaptive\t plant\tusing Australian coal.\tDefendants  1  to  3
\nwrongfully, fraudulently and illegally began to insist\tthat
\nthe said test on completion was in terms of the contract and
\nthat the plaintiff should give a ‘take over certificate’  of
\nthe captive power plant to enable defendant 3 to receive the
\nfinal  5 per cent payment from defendant 4. It\twas  pleaded
\nthat  the  attempt  of the consortium  was  to\tdeceive\t the
\nplaintiff that they had supplied, erected and commissioned a
\nplant  having 108 MW capacity which would run  with  talcher
\ncoal.\tIt was pleaded that the plaintiff was not  satisfied
\nwith  the  plant and expressed its unwillingness to  give  a
\ntake  over  certificate.   The\tplaintiff  pointed  out\t  to
\ndefendants 1 to 3 that talcher coal was going to be used and
\nthe  plant should be made ready to accept the same.  It\t was
\npleaded\t that  defendants 1 to\t3\/suppliers  threatened\t the
\nplaintiff   that  if  it  did  not  take  over\t the   plant
\nimmediately,  they would shut down 50 per cent of the  plant
\nas  they  had by then already received 100 per cent  of\t the
\npayment.  Further to induce the plaintiff to issue take over
\ncertificate,  the suppliers offered a ‘package deal’ if\t the
\nplaintiff  gave a taking over certificate to the  suppliers.
\nUnder the ‘package deal’ defendants 1 to 3
\n510<\/span>
\noffered\t that if the take over certificate was given by\t the
\nplaintiff the suppliers would rectify all the defects of the
\nplant  and increase the defect liability  period.   Although
\nthe  plaintiff\twas  not  satisfied by\tthe  test  which  on
\ncompletion  was specifically communicated to  the  suppliers
\nbut in view of the threat of the suppliers and on the  basis
\nof  the\t offer of ‘package deal’ which was accepted  by\t the
\nplaintiff,  the\t plaintiff gave a  conditional\ttaking\tover
\ncertificate on June 25, 1989 with effect from June 24, 1989.
\nTile  said take over certificate was a part of the  ‘package
\ndeal’,\tit was pleaded.\t It was also pleaded that  when\t the
\nplant  was  operated on talcher coal the plaintiff  came  to
\nknow that the defendants had no,. supplied the plant as\t per
\nthe  specifications envisaged under the contracts  and\tthat
\nthe plant was not of 108 MW. It was pleaded that  defendants
\n1 to 3 have committed a fundamental breach of the contracts.\n<\/p>\n
26.It was on these allegations that the plaintiff  pleaded
\nthat  the  conduct of defendants 1 to 4 clearly\t shows\tthat
\nthey made fraudulent representations to the plaintiff  which
\nwere  false to the knowledge of defendants 1 to 4 to  induce
\nthe  plaintiff to enter into agreements with  the  suppliers
\nand defendants 4 to 11 when the defendants 1 to 4 knew\tthat
\nthe  plaintiff\twould suffer because  of  an  under-capacity
\noverrated plant.  It was pleaded that defendants 1 to 4 were
\naware\tthat  the  captive  power  plant  is  not   of\t the
\nspecifications as contracted for and the suppliers by  their
\nletters dated July 3, 1989 and August 23, 1989 intentionally
\nterminated the ‘package deal’ with a view to perpetuate\t the
\nfraud.\n<\/p>\n
\t      27.   In\tparagraph  52 of the plaint  it\t was
\n\t      specifically pleaded thus:\n<\/p>\n
\t      “52.  That the cause of action arose in favour
\n\t      of  the  plaintiff on June 25, 1989  when\t the
\n\t\t\t    defendants\t1 to 4 fraudulently  misrepresente
\nd
\n\t      to the plaintiff regarding their intention  to
\n\t      supply  the goods as per the  description\t and
\n\t      requirement  of the plaintiff.  The  cause  of
\n\t      action  again arose on the various dates\twhen
\n\t      the  representatives of defendants 1 to 4\t met
\n\t      the  representatives of plaintiff and  induced
\n\t      the    plaintiff\t  by\ttheir\t  fraudulent
\n\t      misrepresentations to enter into an  agreement
\n\t      with the plaintiff.  The cause of action\talso
\n\t      arose  on\t May  29  and  31,  1990  when\t the
\n\t      plaintiff\t for the first time became aware  of
\n\t      the fraud perpetuated by the defendants on the
\n\t      plaintiff The cause of action also arose\twhen
\n\t      in  March\t 1990 the plaintiff  discovered\t the
\n\t      fundamental    breach   committed\t   by\t the
\n\t      consortium.  The cause of action for this suit
\n\t      also  arose when the defendant 4 as agent,  on
\n\t      behalf  of defendants 4 to 11 called upon\t the
\n\t      plaintiff by telex dated March 4 , 1991 to pay
\n\t      the  sum\tof US $ 8.40 million  by  April\t 30,
\n\t      1991.   Furthermore  defendant  12  has\talso
\n\t      called upon the plaintiff to make a sum of  US
\n\t      $ 8.40 million payable by April 30, 1991.\t The
\n\t      cause  of action is continuous and no part  of
\n\t      it is barred by law  of limitation.”\n<\/p>\n
\t      28.   We\thave already noticed that  defendant
\n\t      12, on instruct ions from the plaintiff,\tmade
\n\t      payments\tto the lenders on October  31,\t1989
\n\t      and again on November 15, 1990.\n<\/p>\n
511<\/span><\/p>\n
29.On  receipt\tof summons in the suit and notice  on  the
\napplication  for interim injunction filed by the  plaintiff,
\ndefendants  1  to 3 did not enter appearance.\tDefendant  4
\nentered\t appearance specifically in Misc.  Case No.  143  of
\n1991  i.e.  in relation to the application  for\t ad  interim
\ninjunction and specifically denied the case of fraud against
\nthe  lenders.\tIt also challenged the jurisdiction  of\t the
\ntrial\tcourt  to  entertain  the  suit\t as  well   as\t the
\nmiscellaneous  application  in\tview of\t the  provision\t for
\narbitration under the Rules of Conciliation and\t Arbitration
\nof  the International Chamber of Commerce.  It\twas  pleaded
\nthat  separate\tloan agreements were  executed\tbetween\t the
\nplaintiff  and\tthe lenders.  All the loan  agreements\twere
\ngoverned  by  Swedish Law.  All three loan  agreements\twere
\nseparately guaranteed by defendant 12 as primary obliger and
\nnot  as a surety and the amount was payable by defendant  12
\nupon first demand.  It was pleaded that the liability of the
\nborrower  is  unconditional  and shall not  in\tany  way  be
\ndependent  upon the performance of the contracts for  supply
\nof power plant and the payment to the lenders is not in\t any
\nway affected by any other claim which the borrower may\thave
\nagainst\t the  suppliers.   It  was  also  pleaded  that\t all
\ndisbursements  and payments under the loan  agreements\twere
\nmade by defendant 4 to defendants 1 to 3 in Sweden and\tthey
\nhave  been paid in full and it is only the lenders, who\t had
\nto  be\tpaid  by the borrower and in view  of  such  express
\nprovision  in the loan agreements the Indian Courts have  no
\njurisdiction to entertain the suit or the miscellaneous case
\nas  against the lenders.  It was pleaded that if  the  order
\nfor  injunction\t is  vacated no irreparable  loss  would  be
\ncaused\tto the plaintiff because the amount could always  be
\nrecovered  from\t the  banks,  if  any  amount  is   declared
\nrepayable  by  them.  It was pleaded that  the\tlenders\t are
\nlarge and reputed banks, and that the plaintiff has no prima
\nfacie case nor the balance of convenience is in its  favour.
\nThe loan agreements provided a complete answer to the  claim
\nof  the\t plaintiff.   It  was  pleaded\tthat  the  plaintiff
\nattempted to allege fraud but the lenders had nothing to  do
\nwith   the   negotiations  or\tagreements   or\t  subsequent
\nperformance of the project and there is no question of fraud
\nas  alleged against the lenders.  It was pleaded that  there
\nmight have been some misrepresentations or fraud on the part
\nof  the\t suppliers  which is not to  their  knowledge.\t The
\nlenders\t have no concern with the suppliers with  regard  to
\nthe  alleged fraud.  It was pleaded that the  plaintiff\t had
\nwaited for nearly seven years since the signing of the\tloan
\nagreements  and three years for commissioning of  the  plant
\nbefore raising such spurious assertions and this would\tshow
\nthat  there  is\t no  prima  facie  case\t in  favour  of\t the
\nplaintiff.\n<\/p>\n
30.Defendant 12, the guarantor, also filed objections to the
\napplication  for  interim  injunction  with  regard  to\t the
\nguarantee executed by defendant 12 in favour of defendants 4
\nto  11. It was pleaded that the plaintiff itself  had  filed
\nWrit  Petition\tNos. 5218 and 5219 and this  Court  (Supreme
\nCourt) by order dated June 5, 1985 directed defendant 12  to
\nmake disbursements prior to June 15, 1985 of the first\tdown
\npayment\t of  15\t per cent of the loan amount  and  to  issue
\nguarantee  as  per the letter of intent\t dated\tOctober\t 27,
\n1984.  Even on application filed before the Supreme Court by
\ndefendant 12 for
\n512<\/span>
\nmodification  of  the order the Supreme\t Court\tdirected  by
\norder  dated June 17, 1985 that the earlier order  directing
\ndown payment of 15 per cent of the loan amount and issue  of
\nguarantee are to be carried out by defendant 12 on or before
\nJune 25, 1985.\tIn pursuance of the aforesaid direction\t the
\nplaintiff   executed  necessary\t documents  in\t favour\t  of
\ndefendants  4  to 11 and in turn defendant 12  executed\t the
\nnecessary  guarantee  in favour of defendants 4\t to  11\t and
\ndefendant  4 as agent of defendants 5 to 11. It was  pleaded
\nthat  under  clause 5.2 action or  proceedings\tagainst\t the
\nguarantor in respect of the loan agreements or loans may  be
\nbrought\t in the High Court of Justice in England or in\tsome
\nother  Court in United States or in the Court of  Sweden  or
\nIndian\tCourt as the lenders or any of them  may  determine.
\nIt  was\t pleaded that in view of  the  aforesaid  provisions
\nunder  the guarantee executed by defendant 12 no  proceeding
\narising\t out  of  the loan guarantees or the  loans  can  be
\nbrought\t in any court in India and the jurisdiction  of\t the
\nIndian Courts is expressly ousted.  It was also pleaded that
\nunder  clause  1.2 of the payment guarantee,  the  guarantee
\nshall not be impaired by any dispute or claim with regard to
\nthe borrower and the sellers or between the borrower and the
\nlenders.  Under clause 2.1 if the borrower does not pay\t any
\namount\twhen due, the guarantor shall forthwith without\t any
\nprotest\t of  any kind pay the full amount  due\tand  payable
\nunder  the agreements on first demand.\tIt was pleaded\tthat
\nthe alleged dispute of the plaintiff with the suppliers does
\nnot affect the liability or obligation of defendant 12.\t  It
\nwas  also  pleaded that in case defendant 12  is  restrained
\nfrom  honoring\tits obligation under  the  payment-guarantee
\nexecuted  by  it, this will seriously affect its  image\t and
\nfinancial  reputation  in the international market  and\t the
\nobjects of defendant 12 for development of industries in the
\ncountry\t shall\tbe frustrated and that defendant 12  may  be
\ndragged\t into  litigation in Swedish Courts in view  of\t the
\nguarantee  executed  by\t it.   It  was\talso  pleaded\tthat
\ndefendant 12 is neither aware nor concerned with any fraud.\n<\/p>\n
\t      31.   On\tthese  averments,  the\ttrial  court
\n\t      held:\n<\/p>\n
\t      (1)   that defendant 12 has not committed\t any
\n\t      fraud  nor has it any knowledge of it  on\t the
\n\t      material produced;\n<\/p>\n
\t      (2)   that the project report was not prepared
\n\t      by defendant 4;\n<\/p>\n
\t      (3)   that  the defendant 4 made the  payments
\n\t      to  the  suppliers only  on  instructions\t and
\n\t      notice issued by the plaintiff\/borrower as per
\n\t      the credit agreements;\n<\/p>\n
\t      (4)   that  there is no direct  allegation  of
\n\t      fraud against defendants 4 to 11 and theallegations
\n\t      of fraud are based on suspicion;\n<\/p>\n
\t      (5)   that  the  allegation of  fraud  against
\n\t      defendants  4  to 11 “is\tpractically  without
\n\t      substance”;\n<\/p>\n
\t      (6)   that   after   the\texecution   of\t the
\n\t      agreements  only\tthe  agreements\t are  to  be
\n\t      looked into and there is no allegation of\t the
\n\t      plaintiff\t  that\tdefendants  4  to  11\thave
\n\t      breached\t any   terms   and   conditions\t  of
\n\t      agreements executed between the plaintiff\t and
\n\t      defendants 4 to 11;\n<\/p>\n
513<\/span><\/p>\n
(7)that the agreements executed by defendants 4 to 11  are
\nnot incidental to the designing, manufacturing, erection and
\nfabrication  of the project and defendant 4 being  a  banker
\nhas  no\t concern with the agreements  executed\tbetween\t the
\nplaintiff and suppliers;\n<\/p>\n
(8)that\t the  rights and obligations of the  parties  flow
\nfrom  the agreements and therefore the agreements should  be
\nbased for deciding the
\nissue;and
\n(9)that the dues of the lenders as per clause 10.07 of the
\nagreements betweenthe  plaintiff and the  lenders  provide
\nthat   all  amounts  payable  by  the  borrower\t under\t the
\nagreements  shall be paid without set off  or  counter-claim
\nand  liability of the borrower to effect any  payment  under
\nthese  agreements  is unconditional and is not\tin  any\t way
\ndependent on the performance of the contracts or be affected
\nby  any other claim which the borrower may have against\t the
\nsuppliers or against any other party collaborating with\t the
\nsuppliers.  This being so no adjustments can be made so\t far
\nas the repayment of the loans with that of the claim of\t the
\nplaintiff  against  defendants\t1 to 3 which is\t yet  to  be
\nadjudicated  and  defendants  4 to 11 are  entitled  to\t the
\nrepayment of the loans advanced by them notwithstanding\t any
\nclaim  of  the\tplaintiff  against  the\t suppliers  that  is
\ndefendants 1 to 3;\n<\/p>\n
(10)that the bank guarantee had been issued by defendant 12
\nin favour of the lenders on the writ petitions filed by\t the
\nplaintiff itself and defendant 13 and a direction issued  by
\nthe  Supreme Court and, therefore, no fraud has been  played
\nin execution of the bank guarantee;\n<\/p>\n
(11)  that  the breach of terms between\t the  plaintiff\t and
\ndefendants  1  to 3 does not prima facie give  rise  to\t any
\ncause of action against defendants 4 to 11 and for breach of
\ncontracts by defendants 1 to 3 remedies are available to the
\nplaintiff;\n<\/p>\n
(12)that  the bank guarantee in question is independent\t of
\nthe  contracts between the plaintiff and the  suppliers\t and
\nthe  same can be enforced without reference to any claim  or
\ncounter-claim  arising from the main contracts\tbetween\t the
\nplaintiff and defendants 1 to 3;\n<\/p>\n
(13)that the plaintiff has failed to establish prima  facie
\ncase  of  established fraud, therefore, in  the\t absence  of
\nclear and established fraud against defendants 4 to II there
\nis no prima facie case in favour of the plaintiff; and
\n(14)that the plaintiff will not suffer any irreparable loss
\nand the balance of convenience is also against the plaintiff
\nand in favour of defendants 4 to II.\n<\/p>\n
32.On  these findings, as stated earlier, the trial  court
\nvacated\t  the  ad  interim  injunction\tand  dismissed\t the
\napplication for interim relief.\n<\/p>\n
33.The\tplaintiff being dissatisfied went up in appeal\tto
\nthe  High Court (Miscellaneous Appeal No. 370 of 1991).\t  It
\nappears that when the appeal was listed for admission before
\nthe  High Court defendants 4 and 12 entered  appearance\t and
\nsince the matter was urgent in nature, it was heard finally
\n514<\/span>
\nwithout issue of notice to defendants 1 to 3 and 5 to 11 who
\nhad not entered appearance in the trial court.\n<\/p>\n
34.The\tHigh  Court noticed that defendant 4  had  already
\npaid  the  suppliers.  Defendants 5 to 11 are  not  directly
\nconnected  with the captive power plant and defendant  4  is
\ntheir agent.  Since defendants 5 to 11 are not concerned and
\ndefendants  1 to 3 have already received payments, there  is
\nno question of any restraint on them.  It was noticed by the
\nHigh Court that defendant 4 is the lender and the  plaintiff
\nis the borrower.  The High Court observed that principles of
\nguarantee  would not be strictly applicable to it.   General
\nprinciples of induction on lender would alone be applicable.
\nThe  High  Court  examined the terms of clause\t2.1  of\t the
\nguarantee given by defendant 12 in favour of defendants 4 to
\n11  and took the view that this clause under  the  guarantee
\nagreement  creates an obligation on defendant 12 to  pay  to
\ndefendant 4 upon first demand if the plaintiff does not\t pay
\nany amount when due or the loan is declared default.   There
\nis  neither any demand nor a declaration of  default.\tMuch
\nbefore\tthe same the suit had been filed alleging  fraud  in
\nthe transaction.  On the receipt of the plaint the defendant
\n12  was required to make investigation whether there  was  a
\nfraud and how defendant 4 is connected therewith.  Defendant
\n12  without  making any inquiry ought not  to  have  entered
\nappearance  to contest the claim of the plaintiff and  ought
\nto have waited till the order of the court.  Instead it\t has
\ncontested the claim which may give rise to suspicion that it
\nis  anxious  to pay to defendant 4 in terms  of\t US  Dollars
\nwhich  is  now precious for our republic.  If  defendant  12
\nwhich  gave the guarantee by direction of the Supreme  Court
\nwas not happy about the filing of the suit by the  plaintiff
\nit  could have approached the Supreme Court, which gave\t the
\ndirection,  to get an order to discharge its  obligation  to
\ndefendant  4  and ought to have acted upon  such  direction.
\nThe  High  Court  also noticed that  the  fraud\t is  alleged
\nagainst defendants 1 to 4 and, therefore, it thought it\t fit
\nto  examine  whether  the prima facie  allegation  of  fraud
\nagainst\t defendants  1\tto  4  has  been  made\tout  by\t the
\nplaintiff.\n<\/p>\n
35.  The  High Court in paragraph 14 of its order  took\t the
\nview as under:\n<\/p>\n
\t      “14.  Defendant 13 issued a global tender\t for
\n\t      execution\t of  work of  captive  power  plant.
\n\t      Defendant\t 2  on basis of such  global  tender
\n\t      offered  to defendant  by telex on October  5,
\n\t      1982.    On  January  19,\t 1983  defendant   4
\n\t      addressed\t a letter by defendant\t13  offering
\n\t      financial\t assistance referring  to  defendant
\n\t      2’s arrangement for easy terms.  On March\t 31,
\n\t      1983   defendant\t 4  described\tthe   credit
\n\t      facilities which can be given by defendant  4.
\n\t      In  spite of the fact that each party  entered
\n\t      into separate agreements, the facts  contained
\n\t      therein give a clear idea that defendant 4 had
\n\t      knowledge of the nature of work to be executed
\n\t      by   defendants  1  to  3.  Thus,\t there\t was
\n\t      collaboration  with such links that  agreement
\n\t      of  defendant 4 cannot be separately  read  at
\n\t      this  stage while considering the question  of
\n\t      injunction.”\n<\/p><\/blockquote>\n
515<\/span><\/p>\n
Though\tno  notice was issued to defendants 1 to  3  in\t the
\nappeal, the High Court observed:\n<\/p>\n
\t      “It shall be sufficient to shortly state\tthat
\n\t      I\t  carry\t an  ‘Impression  on   reading\t the
\n\t      documents filed that defendants 1 to 3 had  no
\n\t      capacity to execute the work of 108 MW captive
\n\t      power  plant.  Even if they had capacity,\t the
\n\t\t\t    execution was not perfect.\tThey had  knowledg
\ne
\n\t      that  the\t power plant Is to  be\tcommissioned
\n\t      based   on  Talcher  Coal.    They,   however,
\n\t      commissioned the same on Australian Coal.\t All
\n\t      these were within their knowledge.   Defendant
\n\t      4 was linked with them in such manner that for
\n\t      the  purpose  of considering the\tquestion  of
\n\t      injunction,  defendant  4\t ought\tnot  to\t  be
\n\t      delinked and treated separately.”\n<\/p><\/blockquote>\n
36.The\tHigh  Court  also held that it is  true\t that  the
\nplaintiff failed to bring to the notice of defendant 4 about
\nits  grievances\t and about the nature of  work\texecuted  by
\ndefendants  1 to 3. If the same would have been\t brought  to
\nthe  notice  of defendant 4 and in spite of it\tdefendant  4
\nwould  have paid to defendants 1 to 3 basing upon  clearance
\ngiven  by the plaintiff, a strong prima facie case of  fraud
\nby  defendant 4 could have been made out.  However,  on\t the
\nfacts  as  presented at this stage it cannot  be  said\tthat
\ndefendant  4  is as innocent as it claims to be.   The\tHigh
\nCourt  took  the view that the inference of fraud is  to  be
\ndrawn not from individual event and such event by itself may
\nnot be sufficient for drawing inference of fraud.   Totality
\nof  the events cumulatively have the effect of fraud and  in
\nthis case, if the facts and circumstances from the stage  of
\nglobal\ttender\ttill  the  suit\t is  filed  are\t  considered
\ntogether, a clear impression of fraud in the transaction  of
\ncaptive\t power\tplant by defendants 1 to 3  is\tcreated\t and
\ndefendant  4  cannot  be fully disassociated  from  it.\t  On
\nbalance of convenience the High Court took the view that  if
\nthe  injunction is granted, payment to defendant 4 would  be
\ndelayed and if no injunction is granted, defendant 12  would
\npay  to defendant 4 periodically on demand and fall back  on
\nthe  plaintiff to pay the dues.\t The plaintiff is to pay  on
\ncash-flow  basis as per the project and feasibility  report.
\nOn  account of generation of electrical energy which is\t far
\nless  than the assured units, there is no scope for  payment
\non  cash-flow  basis.\tIt has to  divert  its\tcapital\t for
\npayment of loans and in that process becomes owner of a sick
\nindustry.   While on account of delayed payment defendant  4
\nmay  have some effect on its goodwill whereas the  plaintiff
\nwill have to sacrifice its entire goodwill.  Therefore,\t the
\nbalance\t of convenience is in favour of the plaintiff.\t The
\nHigh  Court  then considered the nature of  injunction\tthat
\nwould  be granted by it.  For this it issued a direction  to
\ndefendant  4 not to insist on defendant 12 for\tpayment\t for
\ntwo years till the end of 1993 and a direction to  defendant
\n12  not to pay defendant 4 till that period on the basis  of
\nguarantee  or  till the disposal of the\t suit  whichever  is
\nearlier\t and  for  this\t period\t of  deferred  payment\t the
\nplaintiff  shall  pay interest at the rate of  18  per\tcent
\ninstead\t of subsidised interest for amount due\tduring\tthis
\nperiod.\n<\/p>\n
37.Before we examine the respective contentions of learned
\ncounsel for the parties we very much regret the\t observation
\nmade by the High Court
\n516<\/span>
\nagainst\t IDBI, defendant 12.  It is true that the  guarantee
\nwas  given as per the order of this Court.  In the order  of
\nthis  Court  the  guarantee  culminated\t into  the  accepted
\nagreements  between  the  lenders and IDBI.   There  was  no
\nquestion  of defendant 12 approaching this Court for  taking
\ndirection  as  to what it should do while  meeting  its\t own
\ncontractual  obligations  as  an apex  Organisation  of\t the
\nGovernment in helping the industrialisation of the  country.
\nThe  remarks against defendant 12 are wholly  uncalled\tfor.
\nDefendant  12  is a party to the suit.\tIt  is\tentitled  to
\nenter appearance on its behalf and to take the pleas open to
\nit on facts and in law.\t It has to maintain its\t credibility
\nand  not merely be guided by the loss to our  citizens.\t  It
\nhas   also  to\tmaintain  its\tinternational\tcredibility.
\nCredibility  is\t the most important thing  for\tany  banking
\ninstitution.   If  the\tcredibility  goes  the\tbank  cannot
\nsurvive.  The bank in its working has to be most upright and
\nhonest in dealing with its customers.\n<\/p>\n
38.Coming  to the merits of the case itself it appears\tto
\nus  that  the  High  Court  totally  misdirected  itself  in
\nassuming  that\tthe present application for  interim  relief
\nagainst\t the  enforcement  of bank guarantee is\t not  to  be
\ndecided strictly on principles of injunction in relation  to
\nbank  guarantee\t but  general principles  of  injunction  on
\nlenders\t would be applicable and on that basis proceeded  to
\ndecide the matter.\n<\/p>\n
39.Whenever  an\t appeal\t is heard it is the  duty  of  the
\nappellate  court to examine the findings of the trial  court
\nand  if the findings of the trial court are not correct,  to
\ndeal with it.  What we find in the present case is that\t the
\nHigh Court did not even appear to have noticed the  findings
\nof the trial court much less any attempt being made to\tmeet
\nthem.\tWe  have  noticed earlier the  findings\t which\twere
\nrecorded  by the trial court.  One of the basic findings  of
\nthe trial court was that there is no material of established
\nfraud against defendant 4 nor defendant 4 has any  knowledge
\nof any fraud having been committed by defendants 1 to 3. The
\nallegation  of\tfraud against defendant 4 has been  made  on
\nsuspicion.   Another  important finding given by  the  trial
\ncourt  was  that one has to look at  the  actual  agreements
\nexecuted between the parties and defendants 4 to 11 have not
\ncommitted  any\tbreach\tof agreements  with  the  plaintiff.
\nAnother\t finding  given\t by the trial  court  was  that\t the
\nagreements executed by defendants 4 to 11 are not incidental
\nto the designing, manufacturing, erection and fabrication of
\nthe  project and defendant 4 being a banker has\t no  concern
\nwith  the agreements executed between the plaintiff and\t the
\nsuppliers.   The other finding recorded by the\ttrial  court
\nwas that the rights and obligations of the parties flow from
\nthe agreements and, therefore, the agreements should be\t the
\nbasis  for  deciding the issue.\t Again the trial  court\t had
\nvery  specifically  held  that in  view\t of  the  agreements
\nbetween\t the  lenders and borrower, breach, if any,  of\t the
\nagreements  by defendants 1 to 3 and claim, if any,  of\t the
\nplaintiff against defendants 1 to 3 would be of no effect on
\nthe  agreements between the borrower and lenders.   None  of
\nthese findings are either noticed or met by the High  Court.
\nOn  the\t other hand the High Court after noticing  that\t the
\nagreements  between the borrower and suppliers are  separate
\nfrom the
\n517<\/span>
\nagreements between the lenders and borrower it jumped to the
\nconclusion  that “the facts contained therein give  a  clear
\nidea  that  defendant 4 had knowledge of the nature  of\t the
\nwork  to  be executed by defendants 1 to 3. Thus  there\t was
\ncollaboration with such links that agreement of defendant  4
\ncannot\tbe separately read at this stage  while\t considering
\nthe question of injunction.”\n<\/p>\n
40.With\t all due respect to the learned Judge, we fail\tto
\nunderstand  this reasoning.  Section 92<\/a> of the Evidence\t Act
\ndebars\tthe court from looking into oral evidence  once\t the
\ncontract  is executed in writing except as provided  for  in
\nsix provisos thereof.\n<\/p>\n
41.Again  it  appears that the High Court found\t a  strong
\nprima  facie case against defendant 4 merely on reading\t the
\nplaint.\t  Pleadings  make only allegations or  averments  of
\nfacts.\t Mere pleadings do not make a strong case  of  prima
\nfacie fraud.  The material and evidence has to show it.\t  No
\nmaterial whatsoever is referred to by the High Court.\n<\/p>\n
42.In A.L.N. Narayanan Chettyar v. Official Assignee, High<\/a>
\nCourt Rangoon’ the Privy Council held that:\n<\/p>\n
\t      “Fraud  like  any other charge of\t a  criminal
\n\t      offence  whether\tmade in\t civil\tor  criminal
\n\t      proceedings,   must  be\testablished   beyond
\n\t      reasonable  doubt.   A  finding  as  to  fraud
\n\t      cannot be based on suspicion and conjecture.”\n<\/p><\/blockquote>\n
43.Mr  Venugopal, learned counsel for the plaintiff,  took
\nus  through the entire correspondence exchanged between\t the
\nsupplier  (defendant  2)  and the  holding  company  of\t the
\nplaintiff (defendant 13) including the letters dated October
\n5,  1982, January 7, 1983, March 31, 1983, April  14,  1983,
\nproject report dated August 12, 1983, the financial  pattern
\nas  well as various proposals made by defendants 1 to  3  to
\ndefendant 13, draft agreements and other documents till\t the
\nculmination  of\t contracts with defendants 1 to\t 3.  Learned
\ncounsel also took us through the various letters dated April
\n7, 1989; April 20, 1989, May 22-24, 1989 from the  plaintiff
\nto  defendants 1 to 3 and other documents  including  letter
\ndated October 6, 1989 from the plaintiff to defendant 3\t and
\na mass of other documents.\n<\/p>\n
44.We  are  prima facie debarred from looking  at  various
\nproposals,  drafts,  project  reports, if  any,\t before\t the
\ncontracts between the borrower and defendants 1 to 3 on\t one
\nhand and the credit agreements between the borrower and\t the
\nlenders having been executed later.  Facts which come within
\nprovisos  1  to 6 to Section 92<\/a> of the Evidence Act  can  be
\nproved.\t  The plaintiff could have resorted to proviso 1  to
\nSection 92<\/a> of the Evidence Act.\t Section 92<\/a> with proviso (1)
\nof the Evidence Act<\/a> reads as follows:\n<\/p>\n
\t      “92.    Exclusion\t  of   evidence\t  of\toral
\n\t      agreement.-   When  the  terms  of  any\tsuch
\n\t      contract,\t  grant\t or  other  disposition\t  of
\n\t      property, or any matter required by law to  be
\n\t      reduced  to the form of a document, have\tbeen
\n\t      proved  according\t to  the  last\tsection,  no
\n\t      evidence of any oral agreement
\n\t      1 AIR 1941 PC 93 : 196 IC 404: 1941 OWN 1392
\n\t      518<\/span>
\n\t      or statement shall be admitted, as between the
\n\t      parties  to  any\tsuch  instrument  or   their
\n\t      representatives  in interest, for the  purpose
\n\t      of  contradicting,  varying,  adding  to,\t  or
\n\t      substracting from, its terms:\n<\/p><\/blockquote>\n
\t      Proviso  (1).-  Any fact may be  proved  which
\n\t      would invalidate any document, or which  would
\n\t      entitle  any  person to any  decree  or  order
\n\t      relating thereto; such as fraud, intimidation,
\n\t      illegality,  want\t of due execution,  want  of
\n\t      capacity\tin  any contracting party,  want  or
\n\t      failure  of consideration, or mistake in\tfact
\n\t      or law.”\n<\/p><\/blockquote>\n
45.It  is clear from the averments in the plaint that  the
\nplaintiff  was\tnot  seeking  cancellation  of\tany  of\t the
\nagreements  either  with the suppliers or the  lenders.\t  We
\nhave already reproduced the substance of the prayers made in
\nthe plaint.  In fact the plaintiff prayed for diminution  of
\nthe  price  towards  the power plant by\t way  of  breach  of
\ncontracts,  goods  being  not of  the  specifications.\t The
\nplaintiff prayed for avoidance of the take over certificate.
\nVis-a-vis taking over certificate there is no allegation  of
\ncoercion or fraud against defendant 4 at all.\n<\/p>\n
46.The plea that the lenders were to be paid from the cash
\nflow by sale of surplus electricity in the market is nowhere
\nmentioned  in any of the contracts between the borrower\t and
\nthe  suppliers\tand the High Court without any\tprima  facie
\nadmissible material went on to rely on the bald averment  in
\nthe  pleadings.\t Again it is not known on what material\t the
\nHigh  Court  got  “the\tclear impression  of  fraud  in\t the
\ntransaction  of captive power plant by defendants 1 to 3  is
\ncreated\t and defendant 4 cannot be fully disassociated\tfrom
\nit”.   Neither\tthe  trial  court nor  the  High  Court\t was
\nrequired  to  go  into the question of fraud  on  behalf  of
\ndefendants  1  to  3 as there was no  interim  relief  being
\nclaimed against them.  Even if we assume fraud by defendants
\n1 to 3 where was the material to associate defendant 4\twith
\ndefendants 1 to 3.\n<\/p>\n
47.Mr Venugopal again stressed the fact that defendant\t4,
\nthe  lender  was  the  agent  of  defendants  1\t to  3,\t the
\nsuppliers.   For  this\tsubmission  there  is  no   material
\nwhatsoever except the suppliers’ introducing defendant 4  as
\nthe  formal  channel for making the credit  available.\t The
\ncommunication of defendant 4 to the plaintiff mentioning the
\nsuppliers as valuable clients of defendant 4 is again of  no
\nconsequence.  A banker has to deal with its customers  every
\nday.   If the bank calls its customer a valuable  client  it
\nonly  means  the credit worthiness of the  client.   Nothing
\nmore  nothing less.  It made no mention of the\tprofessional
\ncapability of the suppliers.\n<\/p>\n
48.United Commercial Bank v. Bank of India2<\/a> as it  appears
\nfrom  its title, was a case between two bankers i.e.  United
\nCommercial  Bank and Bank of India.  In that case  appellant
\nbank  was a bank for the buyer whereas the  respondent\tbank
\nwas a bank for the seller.  The facts were that Respondent 2
\nentered\t into a contract to sell to Respondent 3  the  goods
\nvalued\tat approximately Rs 86 lakhs pursuant to  which\t the
\nbuyer  opened  a letter of credit with the  appellant  bank.
\nAfter dispatching the goods to various destinations to which
\nthey were instructed to send, the seller
\n2 (1981) 2 SCC 766:(1981) 3 SCR 300
\n519<\/span>
\npresented 20 sets of documents in the first lot and 27\tsets
\nof documents in the second, the aggregate value of which was
\nequivalent  to\tthe  amount of the letter  of  credit.\t The
\nappellant, who was the buyer’s bank refused to make  payment
\n“except\t under\treserve” pointing to a\tdiscrepancy  in\t the
\nrailway\t receipts as regards the description of\t goods.\t  On
\ninstructions  from the seller the respondent  bank  received
\nthe money in respect of the first lot of 20 documents “under
\nreserve”  and  credited the amount to their account  with  a
\nspecific  notation that the amount was paid “under  reserve”
\nas  a result of discrepancies between the  railway  receipts
\nand the instructions in the letter of credit.\n<\/p>\n
49.In  respect\tof  the second\tlot,  the  appellant  bank
\nrefused\t payment  on  the ground  of  discrepancies  in\t the
\nrailway\t receipts as before as also on the ground that\tsome
\nof  the railway receipts were “stale”.\tIn the meantime\t the
\nappellant  bank\t asked the respondent to refund\t the  amount
\npaid in respect of the first lot of documents under  reserve
\nbecause\t the bills were not acceptable to the buyer  due  to
\ndiscrepancies.\t Some  correspondence  ensued  between\t the
\nparties\t and  the  bank;  eventually  on  the  faith  of  an
\nundertaking given by the seller the appellant bank paid\t the
\nremainder amount in respect of the 27 bills as well”under
\nreserve”  so that the value in respect of both the  sets  of
\nbills paid to the seller in two instalments was made  “under
\nreserve”.\n<\/p>\n
50.The\tseller\tfiled the suit in the High Court.   A  few
\ndays thereafter the appellant bank served a letter of demand
\non the respondent bank for refund of the entire amount\tpaid
\nto it in respect of two sets of bills together with interest
\nthereon because, according to it, the bills of exchange\t had
\nnot  been  retired  by the buyer for the  reasons  that\t the
\nrailway\t receipts  were stale; that the goods had  not\tbeen
\nsupplied  according to the terms of the agreement  and\tthat
\nchemical analysis of the oil showed that it was not fit\t for
\nhuman consumption.\n<\/p>\n
51.The\trespondent  bank in turn wrote to  the\tseller\tto
\nrefund the whole amount whereupon the seller moved the\tHigh
\nCourt  for  the grant of an ex parte ad\t interim  injunction
\nrestraining  the appellant from recalling or  receiving\t the
\namount\tdue from the respondent bank which was\tgranted.   A
\nSingle\tJudge of the High Court made a temporary  injunction
\ntill  the  disposal of the suit filed by the seller  on\t the
\nview that the appellant was not entitled under the terms  of
\nthe  letter of credit to unilaterally impose a condition  of
\nthe  payment “under reserve” or refuse to pay to the  seller
\nmerely because of the alleged discrepancies.\n<\/p>\n
52.On an appeal the Division Bench summarily dismissed the
\nappellant  bank’s  appeal with the result  that\t the  seller
\nreceived the whole of the amount of the letter of credit  as
\nwell as bought the whole lot of goods for Rs 18.53 lakhs.\n<\/p>\n
53.On  the  question whether the High Court should,  in\t a
\ntransaction  between  a\t banker\t and  a\t banker,  grant\t  an
\ninjunction  at\tthe  instance  of  the\tbeneficiary  of\t  an
\nirrevocable  letter of credit restraining the  issuing\tbank
\nfrom  recalling\t the  amount paid  under  reserve  from\t the
\nnegotiating bank acting on behalf of the beneficiary against
\na  document of guarantee at the instance of the\t beneficiary
\nthis Court held that: (SCR headnote) (SCC p. 784, para 41)
\n520<\/span>
\n\t      “[T]he  High Court was wrong in  granting\t the
\n\t      temporary injunction restraining the appellant
\n\t      bank  from  recalling the amount paid  to\t the
\n\t      respondent bank.\tCourts usually refrain\tfrom
\n\t      granting\t  injunction   to    restrain\t the
\n\t      performance  of  the  contractual\t obligations
\n\t      arising  out of a letter of credit or  a\tbank
\n\t      guarantee\t between one bank and  another.\t  If
\n\t      such temporary injunctions were to be  granted
\n\t      in  a  transaction  between  a  banker  and  a
\n\t      banker, restraining a bank from recalling\t the
\n\t      amount due when payment is made under  reserve
\n\t      to  another bank or in terms of the letter  of
\n\t      guarantee or credit executed by it, the  whole
\n\t      banking system in the country would fail.”\n<\/p>\n
54.In\tU.P.   Cooperative  Federation\t Ltd.\tv.   Singh
\nConsultants  &\tEngineers  (P) Ltd<\/a>.’  the  facts  were:\t The
\nappellant,  a State Government enterprise, on or  about\t May
\n17,  1983,  entered into a contract with the  respondent,  a
\nprivate limited company, for the supply and installation  of
\na  vanaspati manufacturing plant at a place in the  district
\nof  Nainital.\tThe contract  bond  contemplated  guaranteed
\nperformance of the work at various stages in accordance with
\nthe time schedule prescribed and provided for completion and
\ncommissioning of the plant after trial run by May 15,  1984.
\nAccording  to  the appellant, the time was  essentially\t and
\nindisputably the essence of the contract.\n<\/p>\n
55.As  per the terms and conditions of the contract  bond,
\naccording to the appellant, the respondent was to furnish  a
\nperformance bank guarantee for Rs 16.5 lakhs and yet another
\nbank  guarantee for Rs 33 lakhs as security for\t the  monies
\nadvanced by the appellant to the respondent for\t undertaking
\nthe  work.  Both these guarantees as also the contract\tbond
\nentitled  the  appellant to invoke them and call  for  their
\nrealisation and encashment on the failure of the  respondent
\nto perform the obligations for which the appellant was\tmade
\nthe sole judge.\n<\/p>\n
56.It was alleged that the respondent defaulted at various
\nstages and finallyfailed  to complete the work within  the
\nstipulated time.  The appellant invokedthe  two\t guarantees
\none  after the other, and thereafter proceeded to  have\t the
\nplant completed, etc.  According to the appellant, the plant
\ncould actually be commissioned for commercial production  in
\nJuly\/August 1985.\n<\/p>\n
57.The respondent, on August 4, 1986, filed an application
\nunder  Section 41<\/a> of the Arbitration Act, 1940 (The Act<\/a>)  in
\nthe  Court  of the Civil Judge, praying\t for  an  injunction
\nrestraining  the appellant from realising and  encasing\t the
\nbank guarantees.  The Civil Judge dismissed the application.
\nThe  respondent\t filed a revision petition before  the\tHigh
\nCourt,\twhich allowed the same, holding that the  invocation
\nof   the  performance  guarantees  was\tillegal,   and\t the
\ncontentions of the appellant that the performance guarantees
\nconstituted  independent and separate contracts between\t the
\nguarantor  bank and the beneficiary and created\t independent
\nrights,\t liabilities  and obligations  under  the  guarantee
\nbonds themselves, as being “technical
\n3 (1988)1 SCC 174:(1988) 1 SCR 1124
\n521<\/span>
\npleas”.\t  The High Court, however, directed the\t  respondent
\nto keep alive the bank guarantee during the pendency of\t the
\narbitration proceedings.\n<\/p>\n
58.The\tappellant  then moved this Court  and  this  Court
\nthrough\t Sabyasachi  Mukharji and Shetty,  JJ.\tallowed\t the
\nappeal; at page 1138 of the report Mukharji, J. observed  as
\nunder: (SCR headnote)
\n\t      “Under   the  terms  agreed  to  between\t the
\n\t      parties, there is no scope of injunction.\t The
\n\t      High  Court proceeded on the basis  that\tthis
\n\t      was not an injunction sought against the\tbank
\n\t      but against the appellant.  But the net effect
\n\t      of the injunction is to restrain the bank from
\n\t      performing the bank guarantee.  That cannot be
\n\t      done.   One cannot do indirectly what  one  is
\n\t      not  free to do directly.\t The respondent\t was
\n\t      not   to\tsuffer\tany  injustice\t which\t was
\n\t      irretrievable.   The  respondent can  sue\t the
\n\t      appellant\t for damages.  There cannot  be\t any
\n\t      basis  in\t the  case  for\t apprehension\tthat
\n\t      irretrievable damage would be caused, if\tany.
\n\t      His Lordship was of the opinion that this\t was
\n\t      not  a  case  in which  injunction  should  be
\n\t      granted.\tAn irrevocable commitment either  in
\n\t      the  form\t of  confirmed\tbank  guarantee\t  or
\n\t      irrevocable   letter  of\tcredit\t cannot\t  be
\n\t      interfered with except if a case of fraud or a
\n\t      case   of\t a  question  of   apprehension\t  of
\n\t      irretrievable  injustice\thas been  made\tout.
\n\t      This is the well-settled principle of the\t law
\n\t      in  England.   This is also  the\twell-settled
\n\t      principle\t of law in India.  No fraud  and  no
\n\t      question\t of  irretrievable   injustice\t was
\n\t      involved in the case.”\n<\/p>\n
\t      (emphasis supplied)
\nThe teamed Judge at pages 1141 and 1142 held as under:\t(SCR
\nheadnote)
\n\t      “In order to restrain the operation either  of
\n\t      irrevocable  letter of credit or of  confirmed
\n\t      letter  of credit or of bank guarantee,  there
\n\t      should  be  a  serious  dispute  and  a\tgood
\n\t      primafacie case of fraud and special  equities
\n\t      in   the\tform  of  preventing   irretrievable
\n\t      injustice between the parties; otherwise,\t the
\n\t      very  purpose  of\t bank  guarantees  would  be
\n\t      negatived and the fabric of trading  operation
\n\t      would be jeopardised.  The commitments of\t the
\n\t      banks must be honoured free from\tinterference
\n\t      by  the courts; otherwise, trust\tin  commerce
\n\t      internal\t  and\tinternational\t would\t  be
\n\t      irreparably   damaged.\tIt   is\t  only\t  in
\n\t      exceptional cases, that is, in cases of  fraud
\n\t      or  in cases of irretrievable  injustice\tthat
\n\t      the  court  should interfere.  This is  not  a
\n\t      case  where irretrievable injustice  would  be
\n\t      done  by\tenforcement of the  bank  guarantee.
\n\t      This  is also not a case where a strong  prima
\n\t      facie  case  of  fraud  in  entering  into   a
\n\t      transaction  was\tmade out.   The\t High  Court
\n\t      should  not  have\t interfered  with  the\tbank
\n\t      guarantee.  The judgment and order of the High
\n\t      Court set aside.\tThe order of the Civil Judge
\n\t      restored.”\t  (emphasis in original)\n<\/p>\n
59.Shetty,  J.\tconcurring with Mukharji, J.  noticed  the
\nquestion involved at page 1143 of the report as under:\t(SCR
\nheadnote)
\n\t      “Whether the obligation is similar to the\t one
\n\t      arising under a letter of credit?\t Whether the
\n\t      Court  could  interfere  in  regard  to\tsuch
\n\t      obligation,    and   if\tso,    under\twhat
\n\t      circumstances?  These are the questions raised
\n\t      in the appeal.”\n<\/p>\n
\t      522<\/span><\/p>\n
\t      The  learned  Judge at pages 1 144  to  1\t 145
\n\t      observed: (SCR headnote)
\n\t       “The  primary question for  consideration  is
\n\t      whether  the  High  Court\t was  justified\t  in
\n\t      restraining  the appellant from  invoking\t the
\n\t      bank guarantees.\tThe basic nature of the case
\n\t      relates to the obligations assumed by the bank
\n\t      under  the guarantees given to the  appellant.
\n\t      If under the law, the bank cannot be prevented
\n\t      by  the  respondent from honoring\t the  credit
\n\t      guarantees,  the\tappellant  also\t cannot\t  be
\n\t      restrained from invoking the guarantees.\tWhat
\n\t      applies to the bank must equally apply to\t the
\n\t      appellant.   Therefore, the frame of the\tsuit
\n\t      by  not implemented the bank cannot  make\t any
\n\t      difference  in the position of law.   Equally,
\n\t      it  would be futile to contend that the  court
\n\t      was justified in granting the injunction since
\n\t      it  has found a prima facie case in favour  of
\n\t      the respondent.  The question of examining the
\n\t      prima  facie  case or balance  of\t convenience
\n\t      does  not arise if the court cannot  interfere
\n\t      with the unconditional commitment made by\t the
\n\t      bank   in\t  the\tguarantees   in\t  question.”\n<\/p>\n
\t      (emphasis in original)
\nThe  learned  Judge  further at pages 1145,  1146  and\t1148
\nobserved: (SCR headnote)
\n\t      “The modern documentary credit had its  origin
\n\t      from letters of credit.  The letter of  credit
\n\t      has  developed  over  hundreds  of  years\t  of
\n\t      international  trade.   It  was  intended\t  to
\n\t      facilitate  the  transfer\t of  goods   between
\n\t      distant  and unfamiliar buyer and seller.\t  It
\n\t      was  found  difficult for a buyer to  pay\t for
\n\t      goods  prior  to their delivery.\t The  bank’s
\n\t      letter of credit came to bridge this gap.\t  In
\n\t      such  transactions, the  seller  (beneficiary)
\n\t      receives payment from the issuing bank when he
\n\t      presents\ta  demand as per the  terms  of\t the
\n\t      documents.  The bank must pay if the documents
\n\t      are  in  order  and the terms  of\t credit\t are
\n\t      satisfied.  The bank, however, was not allowed
\n\t      to  determine whether the seller had  actually
\n\t      shipped\tthe  goods  or\twhether\t the   goods
\n\t      conformed to the requirements of the contract.
\n\t      Any  dispute between the seller and the  buyer
\n\t      must  be\tsettled\t between  themselves.\t The
\n\t      Courts,  however, in carving out an  exception
\n\t      to  this rule of absolute\t independence,\theld
\n\t      that  if\tthere  has  been  a  ‘fraud  in\t the
\n\t      transaction’,   the   bank   could   dishonour
\n\t      beneficiary’s demand for payment.\t The  Courts
\n\t      have generally permitted dishonour only on the
\n\t      fraud  of\t the beneficiary, not the  fraud  of
\n\t      somebody else.\n<\/p>\n
\t      In  modem\t commercial  transactions,   various
\n\t      devices are used to ensure performance by\t the
\n\t      contracting  parties.  The traditional  letter
\n\t      of  credit has taken a new meaning.   Stand-by
\n\t      letters  of credit are also used\tin  business
\n\t      circles.\tPerformance bond and guarantee\tbond
\n\t      are  also\t devices  increasingly\tadopted\t  in
\n\t      transactions.   The Courts have  treated\tsuch
\n\t      documents\t as analogous to letter of  credit.”
\n\t      (emphasis supplied)
\nLearned\t Judge\tat  pages 1149 and 1150\t again\tobserved  as
\nunder: (SCR headnote)
\n\t      “Whether it is a traditional letter of  credit
\n\t      or  a  new device, like  performance  bond  or
\n\t      performance  guarantee, the obligation of\t the
\n\t      bank
\n\t      523<\/span>
\n\t      appears  to  be  the  same.   Since  the\tbank
\n\t      pledges\tits   own  credit,   involving\t its
\n\t      reputation,  it has no defence except  in\t the
\n\t      case  of fraud.  The nature of the fraud\tthat
\n\t      the  courts  talk\t about is the  fraud  of  an
\n\t      ‘egregious  nature  as to vitiate\t the  entire
\n\t      underlying  transaction’.\t It is the fraud  of
\n\t      the  beneficiary, not fraud of somebody  else.
\n\t      The  bank\t cannot be compelled to\t honour\t the
\n\t      credit in such cases.  In such cases, it would
\n\t      be  proper  for the bank to ask the  buyer  to
\n\t      approach\tthe  court for an  injunction.\t The
\n\t      court,  however, should not lightly  interfere
\n\t      with the operation of irrevocable\t documentary
\n\t      credit.  In order to restrain the operation of
\n\t      irrevocable letter of credit, performance bond
\n\t      or  guarantee,  there  should  be\t a   serious
\n\t      dispute to be tried and there should be a good
\n\t      prima facie act of fraud.” (emphasis supplied)
\nLearned Judge at page 1150 observed: (SCR headnote)
\n\t      “The   sound  banking  system  may,   however,
\n\t      require  more  caution  in  the  issuance\t  of
\n\t      irrevocable documentary credits.\tIt would  be
\n\t      for the banks to safeguard themselves by other
\n\t      means,  and, generally, not for the courts  to
\n\t      come  to their rescue with injunctions  unless
\n\t      there  is established fraud.  The appeal\tmust
\n\t      be allowed, and the order of the Civil  Judge,
\n\t      restored.” (emphasis supplied)\n<\/p>\n
60.We have referred to the observations of both Sabyasachi
\nMukharji as well as Shetty, JJ. in extenso to emphasise that
\nin case of confirmed bank guarantees\/irrevocable letters  of
\ncredit,\t it cannot be interfered with unless there is  fraud
\nand  irretrievable injustice involved in the case and  fraud
\nhas to be an established fraud.\t The expression “to  prevent
\nirretrievable injustice” appears to have been taken from the
\ndecision  of the Court of Appeal in England in the  case  of
\nElian and Rabbath (Trading as Elian & Rabbath) v. Matsas and
\nMatsaS4.   The facts of that case were peculiar.  The  first
\ndefendant,  a vessel, was chartered by\tLebanese  charterers
\nfor  carriage  of plaintiffs’ cargo (consigned\tto  Hungary)
\nfrom  Beirut to Rijeka.\t Discharge of the cargo was  delayed
\nat  Rijeka and the shipowners exercised their lien on  cargo
\nin respect of demurrage due to delay in discharge of  cargo.
\nThe  third  defendant-bank put up a guarantee in  London  in
\nfavour of the second defendants, who were first\t defendants’
\nLondon\tagents,\t to secure release of cargo.   There  was  a
\nclaim by Yugoslavians to distrain upon goods, involving\t the
\nship  in  further delay and master of the ship,\t on  lifting
\noriginal  lien,\t immediately  exercised\t another  lien,\t  in
\nrespect\t of  extra  delay.  Original lien  was\traised\twhen
\nHungarian  buyers put up 2000 Pounds.  Two years  later\t the
\nshipowners  claimed  arbitration with charterers  to  assess
\ndemurrage for which the first lien was exercised and claimed
\nto  enforce guarantee.\tPlaintiff claimed  declaration\tthat
\nguarantee  was\tnot  valid (as the original  lien  had\tbeen
\nlifted)\t and an injunction to restrain shipowners  or  their
\nagents\tfrom enforcing guarantee.  The shipowners and  their
\nLondon\tagents\tas  first  and\tsecond\tdefendants  appealed
\nagainst\t granting of injunction by Blain, J. It was held  by
\nthe  Court  of Appeal that it was a special  case  in  which
\ncourt should
\n4   (1966) 2 Lloyd’s Rep 495
\n524<\/span>
\ngrant  injunction  to prevent what  might  be  irretrievable
\ninjustice.  Lord Denning observed that although the shippers
\nwere  not parties to the bank guarantee,  nevertheless\tthey
\nhad  a most important interest in it.  If the  Midland\tBank
\nLtd.,  paid under this guarantee, they would  claim  against
\nthe  Lebanese  Bank,  who in turn would\t claim\tagainst\t the
\nshippers.  The shippers would certainly be debited with\t the
\naccount.   On being so debited, they would have to  sue\t the
\nshipowners for breach of their promise express or implied to
\nrelease\t the goods.  Lord Denning posed the question:  “Were
\nthe shippers to be forced to take that course?” Or can\tthey
\nshort-circuit  the dispute by suing the shipowners  at\tonce
\nfor  an\t injunction?  Lord Denning observed that  it  was  a
\nspecial case in which injunction should be granted and\twent
\non to observe that there was a prima facie ground for saying
\nthat the shipowners promised that, if the bank guarantee was
\ngiven, they would release the goods.  He further went on  to
\nobserve that the only lien they had in mind at that time was
\nthe  lien for demurrage.  But would anyone suppose that\t the
\ngoods  would  be held for another lien in respect  of  extra
\ndelay.\t His Lordship observed that “it can well  be  argued
\nthat  the guarantee was given on the understanding that\t the
\nlien  was raised and no further lien imposed, and that\twhen
\nthe  shipowners, in breach of that understanding  imposed  a
\nfurther\t lien,\tthey  were  disabled  from  acting  on\t the
\nguarantee”.   If we closely analyse the facts of that  case,
\nirretrievable  injustice which was made the basis for  grant
\nof  injunction really was on the ground that  the  guarantee
\nwas  not  encashable on its terms when the buyers  had\tpaid
\n2000 Pounds to lift the original lien.\n<\/p>\n
61.Another  matter  came  before  this\tHon’ble\t Court\tin
\nGeneral\t Electric  Technical Services Company Inc.  v.\tPunj
\nSons (P) Ltd<\/a>.5 The facts of the case are as follows.\n<\/p>\n
62.The appellant’s contract with Indian Airlines  included
\nthe   construction  and\t fabrication  of  aircraft   testing
\ncentre\/engine repair centre in Delhi.  For getting that work
\ndone, the appellant entered into a contract with Respondent.\n<\/p>\n
63.As per the contract, Respondent I was required to provide
\nperformance bond equal to 30 per cent of the total value  of
\ncontract   price,  which  was  to  be  split  up  into\t two
\nperformance bonds partly to be released on completion of the
\nproject,  and  the  balance  upon  the\texpiration  of\t the
\nwarranty,  and\tto furnish a bank guarantee  to\t secure\t the
\nmobilisation advance of 25 per cent of contract value.\n<\/p>\n
64.Respondent I, instead of furnishing the two performance
\nbonds,\twrote  a letter for a revised  proposal,  which\t was
\naccepted by the appellant.\n<\/p>\n
65.As  the  Respondent I failed to  complete  the  project
\nwithin\t  the\tstipulated   time,   as\t  per\t contractual
\nspecifications,\t  despite   repeated   opportunities,\t the
\nappellant  terminated Respondent 1’s right to  continue\t the
\nproject and sought for encashment of the bank guarantee\t for
\nRs  1,06,12,500,  which was issued to the appellant  by\t the
\nbank.\n<\/p>\n
5 (1991) 4 SCC 230: (1991) 3 SCR 412
\n525<\/span>\n<\/p>\n
66.Respondent  I filed a suit for injunction  against  the
\nappellant and the bank in the High Court and obtained an  ex
\nparte injunction from the Single Judge, restraining the bank
\nand the appellant from encashing the bank guarantee.\n<\/p>\n
67.When the ex parte injunction was vacated, Respondent\t I
\npreferred an appeal to the Division Bench of the High Court.
\nThe Division Bench allowedthe\tappeal,\t  staying    the
\nencashment  of the bank guarantee till the disposal  of\t the
\nrespondent’s suit.\n<\/p>\n
68.On  the  question, whether the court was  justified\tin
\nrestraining  the  bank from paying the appellant  under\t the
\nbank guarantee at the instance of Respondent I, allowing the
\nappeal of the appellant-company, this Court held as under:\n<\/p>\n
\t      “In  the\tinstant\t case, the  High  Court\t has
\n\t      misconstrued  the terms of the bank  guarantee
\n\t      and  the nature of the inter-se rights of\t the
\n\t      parties under the contract.  The\tmobilisation
\n\t      advance  is  required to be recovered  by\t the
\n\t      appellant from the running bills submitted  by
\n\t      the  respondent.\t If  the  full\tmobilisation
\n\t      advance has not been recovered, it would be to
\n\t      the  advantage of the  respondent.   Secondly,
\n\t      the Bank is not concerned with the outstanding
\n\t      amount  payable  by the  appellant  under\t the
\n\t      running bills. The right to recover the amount
\n\t      under  the running bills has no  relevance  to
\n\t      the liability of the Bank under the guarantee.
\n\t      The  liability  of the  Bank  remained  intact
\n\t      irrespective  of the recovery of\tmobilisation
\n\t      advance  or the non-payment under the  running
\n\t      bills.   The  failure  on\t the  part  of\t the
\n\t      appellant\t   to\t specify    the\t   remaining
\n\t      mobilisation   advance  in  the\tletter\t for
\n\t      encashment  of  bank guarantee  is  of  little
\n\t      consequence to the liability of the Bank under
\n\t      the guarantee.  The demand by the appellant is
\n\t      under the bank guarantee and as per the  terms
\n\t      thereof.\tThe Bank has to pay and the Bank was
\n\t      willing  to pay as per the  undertaking.\t The
\n\t      Bank cannot be interdicted by the court at the
\n\t      instance\tof  Respondent I in the\t absence  of
\n\t      fraud  or\t special  equities in  the  form  of
\n\t      preventing irretrievable injustice between the
\n\t      parties.\t The  High Court in the\t absence  of
\n\t      prima facie case on such matters has committed
\n\t      an   error  in  restraining  the\t Bank\tfrom
\n\t      honouring\t  its  commitment  under  the\tbank
\n\t      guarantee.”\n<\/p><\/blockquote>\n
69.One\tof the arguments in that case was that as per  the
\nterms  of  bank guarantee it could not be encashed  at\tthat
\nstage.\tThis Court at pages 416 to 418 noticed the terms and
\nconditions of the first bank guarantee which was towards the
\nperformance  of\t the  project  and  to\tsecure\tmobilisation
\nadvance of 25 per cent of the contract value.  Again at page
\n418  the  Court noticed the replaced second  composite\tbank
\nguarantee dated January 25, 1988 keeping the other terms  of
\nthe   original\tbank  guarantee\t dated\tOctober\t  28,\t1986
\nunchanged.  The case of the plaintiff was that there was  no
\nproper\tdemand\tfor payment of balance of  the\tmobilisation
\nadvance nor was it mentioned in the letter of demand to\t the
\nbank.  It was also the case of the respondent that on  terms
\nof  the bank guarantee the stage had not reached  to  encash
\nit.   This Court noticed at pages 419-420 of the  report  as
\nfollows: (SCC p. 236, para 8)
\n526<\/span>
\n\t      “The  second bank guarantee with which we\t are
\n\t      concerned\t makes\ta  reference  to  the  first
\n\t      guarantee.  It states that the guarantee is  a
\n\t      composite\t bank guarantee for mobilisation  of
\n\t      advance  and  performance\t bond.\t It  further
\n\t      states that all the other terms and conditions
\n\t      of   the\t original  guarantee   will   remain
\n\t      unchanged.”\n<\/p>\n
70.The Court first decided that all the terms of the first
\nbank guarantee were there except that earlier guarantee\t was
\ntowards the mobilisation advance whereas the later guarantee
\nwas a composite bank guarantee for both\t performance of the
\ncontract  as well as for recovery of  mobilisation  advance.
\nThe Court noticed how the liability under the guarantee will
\nget reduced from stage to stage by realisation from  running
\nbills  towards\tmobilisation  advance and  under  the  first
\nguarantee  itself  the\tbank had undertaken to\tpay  to\t the
\nappellant the amount guaranteed without any demur merely  on
\ndemand\tstating\t that the amount is due by way\tof  loss  or
\ndamage\tcaused to or would be caused to or suffered  by\t any
\nbreach\tcommitted by the respondent on any of the  terms  or
\nconditions  contained  in  the agreement  or  by  reason  of
\nrespondent’s failure to perform the agreement and that\tsuch
\ndemand\tshall  be conclusive as regards the amount  due\t and
\npayable by the bank under the guarantee.  The appellant\t had
\nonly  sought to enforce the bank guarantee for\tthe  balance
\namount\tof  the\t mobilisation advance on  a  complaint\tthat
\nRespondent I had failed to perform the contract as per terms
\nand conditions.\t As mobilisation advance could be  recovered
\nearlier\t only from the running bills and since the  contract
\nhad been terminated, the balance of mobilisation advance was
\nsought\tto be recovered from the bank guarantee.   The\tbank
\nhad  undertaken to pay this amount and in fact the bank\t was
\nprepared  by  pay the same.  It was in\tthese  circumstances
\nthat the Court accepted the appeal and observed that the law
\nhas  been settled in the aforesaid case of U.P.\t Cooperative
\nFederation  Ltd.3  and\tagain noticed  the  observations  of
\nMukharji, J. in that case and observed at page 421 that\t the
\nHigh Court has misconstrued the terms of the bank  guarantee
\nand  the nature of the inter-se rights of the parties  under
\nthe contract.  It was on the question whether the amount was
\ndue  under  the terms and conditions of the  bank  guarantee
\nthat the learned Judge speaking for the Court observed\tthat
\nin the absence of prima facie case on such matters the\tHigh
\nCourt committed error in restraining the bank from honouring
\nits commitment under the bank guarantee.\n<\/p>\n
71.Shetty,  J. speaking for the Bench noticed the  earlier
\nobservations of Mukharji, J. in the case of U.P. Cooperative
\nFederation  Ltd.3  and stated that the nature of  the  fraud
\nthat the courts talk about is fraud of an “egregious  nature
\nas  to\tvitiate the entire underlying transaction”.   It  is
\nfraud of the beneficiary, not the fraud of somebody else.\n<\/p>\n
72.Again in this very judgment Shetty, J. referred to  the
\nobservations  of  Mukharji, J. that there  should  be  prima
\nfacie  case  of fraud and special equities in  the  form  of
\npreventing irretrievable injustice between the parties.\n<\/p>\n
527<\/span><\/p>\n
Mere  irretrievable  injustice without prima facie  case  of
\nestablished  fraud is of no consequence in  restraining\t the
\nencashment of bank guarantee.\n<\/p>\n
73.Mr Venugopal, learned counsel for the borrower referred
\nus to the decision in Itek Corpn. v. The First National Bank
\nof  Boston  etC.6  by  the  United  States  District  Court,
\nMassachusetts  reported\t in  566  Federal  Supplement  1210,
\nparticularly observations at page 1217, which read thus:\n<\/p>\n
\t      “Because\tI  find that Itek  has\tdemonstrated
\n\t      that  it\thas no adequate remedy at  law,\t and
\n\t      because\tI  find\t that  the  allegations\t  of
\n\t      irreparable  harm\t are  not  speculative,\t but
\n\t      genuine  and  immediate, I am  satisfied\tthat
\n\t      Itek  will  suffer  irreparable  harm  if\t the
\n\t      requested relief is not granted.”\n<\/p><\/blockquote>\n
74.The\tfacts in that case were that the exporter  in  USA
\nentered\t into an agreement with Imperial Government of\tIran
\nand  brought action seeking order terminating its  liability
\non  stand-by  letters of credit issued by American  Bank  in
\nfavour of Iranian Bank as part of the contract.\t The learned
\nDistrict  Court\t held that the contractor  was\tentitled  to
\nissuance of preliminary injunction.\n<\/p>\n
75.It  will be noticed that this judgment is  on  peculiar
\nfacts of its own and the situation created after the Iranian
\nRevolution when the American Government cancelled the export
\nlicence\t  in  relation\tto  Iran  as  it  related  to\thigh
\ntechnology.   As the American Government had  cancelled\t the
\nexport licence in view of revolution in Iran and the Iranian
\nGovernment  had\t forcibly  taken  52  American\tcitizens  as
\nhostages and President Carter by executive order blocked all
\nIranian\t assets\t subject to the jurisdiction of\t the  United
\nStates\t and  also  cancelled  the  export  contracts,\t the
\nplaintiff  informed  the  importer in  Iran  invoking  force
\nmajestic but the Iranian importer in spite of it resorted to
\nencashment of the bank guarantee.  The court was of the view
\nthat  even if claim for damages is decreed by  the  American
\ncourts\tsituation in Iran was such that the decree will\t not
\nbe executable in Iran.\tIt was on these facts that the court
\nfelt that it was a case where the plaintiff had demonstrated
\nthat it has no adequate remedy at law and the allegations of
\nirreparable  harm  are\tnot  speculative  but  genuine\t and
\nimmediate and the plaintiff would suffer irreparable harm if
\nthe  requested relief is not granted.  The court also  found
\nas a fact on page 1217 itself that “the uncontested facts in
\nthe  record, if proved at trial, appear to make out a  prima
\nfacie  case  of\t fraud\twithin the  meaning  of\t Section  5-<\/a>
\n114(2)(b)<\/a>  and\theld  that under  these\t circumstances,\t any
\ndemand\ton  the guarantees or letters of credit\t by  Iranian
\nimporter   in  March  1980  would  necessarily\t have\tbeen
\nfraudulent”.\n<\/p>\n
76.It  is  thus\t clear\tthat this  judgment  is\t based\ton
\npeculiar facts, particularly of situation in the  Government
\nof  Iran which came into power after the revolution in\tIran
\nand  its relations with the United States of America and  in
\nany case on the prima facie finding of fraud being given  by
\nthe learned court read with the finding of irreparable\tharm
\nwhich could not be avoided by adequate remedy at law due  to
\npeculiar situation in Iran.\n<\/p>\n
6 566 Fed Supp 1210, 1217
\n528<\/span>\n<\/p>\n
77.It  will be noticed that the plea of the plaintiff  was
\nthat  the contract will get frustrated due  to\trestrictions
\nimposed\t for import and export by the  American\t Government.
\nAlong with it the plea was of irretrievable injury which was
\nexplained in the judgment also as to what it meant.\n<\/p>\n
78.Mr  Venugopal  then\treferred us  to\t the  decision\tof
\nBerger,\t J.  in\t Handerson  v.\tCanadian  Imperial  Bank  of
\nCommerce  and Peat Marwick Ltd.7 Here again the\t facts\twere
\npeculiar.   The plaintiff arranged an irrevocable letter  of
\ncredit\tto fulfil his obligation to purchase 20 episodes  of
\ntwo  television shows from a production\t company.   Although
\nthe  shows  were never produced and the\t production  company
\nwent into bankruptcy, the receiver of the seller made demand
\nupon the bank for payment under the letter of credit and the
\nplaintiff  brought  an\tapplication  for  an   interlocutory
\ninjunction to stop the bank from making payment.  The  court
\ngranted\t the interim injunction and held that the letter  of
\ncredit\tis  independent\t of the\t primary  contract  of\tsale
\nbetween\t the buyer and the seller.  The issuing bank  agreed
\nto pay upon presentation of documents, not goods.  There  is
\nan exception to this rule; the bank should not pay under the
\ncredit\twhere it knows that the request for payment is\tmade
\nfraudulently  in  circumstances when there is  no  right  to
\npayment.  The case fell within this exception.\tThe bank had
\nbeen  put  in knowledge of the fact that the shows  had\t not
\nbeen produced and, therefore, the receiver was not  entitled
\nto  the proceeds.  It will be noticed that this decision  is
\nbased on obvious fraud and this view was given by Berger, J.
\nafter  considering the case of Sztejn v. J.  Henry  Schroder
\nBanking Corpn.8\n<\/p>\n
79.A   decision\t  of  New  York\t Supreme  Court\t  in   NMC
\nEnterprises, Inc. v. Columbia Broalcasting System, Inc.9 was
\nalso  referred\tto  by Mr Venugopal.  Here  again  Fein,  J.
\nobserved that preliminary injunctive relief will be granted,
\nrestraining bank from honouring a letter of credit, where  a
\nprima facie showing has been made of fraud in the underlying
\ntransaction and the plaintiff has further shown that it\t may
\nbe irreparably injured if the relief is not granted.\n<\/p>\n
80.On  the  facts the Court had taken the  view\t that  the
\nplaintiff had made a sufficient showing of fraud to  justify
\nan injunction against the honouring of the letter of  credit
\ncovering the sale of stereo receivers and related  equipment
\nwhere it appeared by affidavit that at the time the contract
\nwas  negotiated, the plaintiff was provided  with  brochures
\ncontaining  technical  performance  specifications  for\t the
\nreceivers  including their continuous power-output  ratings;
\nthat the receivers did not comply with the representation as
\nto  continuous\tpower output thereby reducing  their  value;
\nthat an officer of the defendant had allegedly admitted that
\ndefendant  was\taware  of the  nonconformity  prior  to\t the
\nexecution of the contract and failed to disclose it to
\n7    40 British Columbia LR 318
\n8    (1941) 31 NY Supp 2d 631, 633
\n9  14 UCC Reporting Services 1427
\n529<\/span>
\nthe plaintiff; and that if the letter of credit was drawn up
\nor negotiated plaintiff might be forced into bankruptcy.\n<\/p>\n
81.It will again be noticed that in this case the  dispute
\nwas between the supplier and the purchaser and the  decision
\nis  based  on  the facts found by the  court  for  grant  of
\npreliminary injunction.\n<\/p>\n
82.  Halsbury  Fourth Edn., Volume 9, para 542\tobserves  as
\nfollows: “542.\tConditions and warranties.- The\t predominant
\nmodern
\n “542. Conditions and warranties.— The  predominant modern
\napproach  is  to  consider the nature of the  terms  of\t the
\ncontract  in  order  to\t decide\t whether  those\t terms\t are
\nconditions or warranties.  Prima facie a breach of condition
\nentitles  the  innocent party to rescind  the  contract\t and
\nclaim  damages for any loss he may have suffered, whereas  a
\nbreach of warranty only entitles him to damages.”\n<\/p>\n
83.Section 12<\/a> of the Sale of Goods Act, 1930 provides  the
\ndifference between’condition’ and ‘warranty’ and reads\tas
\nfollows:\n<\/p>\n
“12.   Condition  and  warranty.- (1)  A  stipulation  in  a
\ncontract  of  sale  with reference to goods  which  are\t the
\nsubject thereof may be a condition or a warranty.
\n(2)A  condition\t is a stipulation essential  to\t the  main
\npurpose of the contract, the breach of which gives rise to a
\nright to treat the contract as repudiated.
\n(3)A  warranty\tis a stipulation collateral  to\t the  main
\npurpose of the contract, the breach of which gives rise to a
\nright to treat the contract as repudiated.
\n(4)Whether  a  stipulation  In a contract  of  sale  is\t a
\ncondition  or  a  warranty  depends  in\t each  case  on\t the
\nconstruction  of  the  contract.  A  stipulation  may  be  a
\ncondition, though called a warranty in the contract.”
\nAgain  Section\t13<\/a> of the Sale of Goods\t Act  provides\twhen
\n‘condition’ is to be treated as ‘warranty’, relevant part of
\nsub-sections (1) and (2) thereof reads as under:
\n“13.  When condition to be treated as warranty.- (1) Where a
\ncontract of sale is subject to any condition to be fulfilled
\nby the seller, the buyer may waive the condition or elect to
\ntreat  the breach of the condition as a breach\tof  warranty
\nand not as a ground for treating the contract as repudiated.
\n(2)Where a contract of sale is not severable and the buyer
\nhas  accepted the goods or part thereof, the breach  of\t any
\ncondition to be fulfilled by the seller can only be  treated
\nas  a breach of warranty and not as a ground  for  rejecting
\nthe  goods and treating the contract as\t repudiated,  unless
\nthere is a term of the contract, express or implied, to that
\neffect.”\n<\/p>\n
84.It will be noticed that in the present case prima facie
\nthe  provision for capacity of the power plant being of\t 108
\nMW  was\t a condition.  Therefore, the plaintiff\t could\thave
\nrepudiated the contract as provided in Section 12(2)<\/a> of\t the
\nSale  of Goods Act or treated as a warranty by\twaiving\t the
\ncondition or
\n530<\/span>
\nelect  to treat the breach of the condition as a  breach  of
\nwarranty  and not as a ground for treating the\tcontract  as
\nrepudiated.\n<\/p>\n
85.In  the present case the plaintiff has  not\trepudiated
\nthe  contract.\tIn fact it is working with the\tpower  plant
\nand, therefore, the breach of condition has been treated  by
\nthe plaintiff as a breach of warranty and in view of Section
\n12(3)<\/a> of the Sale of Goods Act, the breach of warranty gives
\na  right to claim for damages but not to a right  to  reject
\nthe  goods and treat the contract as repudiated.   Even\t the
\nprayer\tin the plaint is for diminution of the price of\t the
\npower  plant  and the relief is based on Section 59<\/a>  of\t the
\nSale of Goods Act.\n<\/p>\n
86.We  have  already held that the contracts  between  the
\nlenders and the borrower are not vitiated by any fraud\tmuch
\nless   established  fraud  and\tthere  is  no  question\t  of
\nirretrievable  injury.\tTherefore, there was no\t reason\t for
\nthe  High Court to set aside the order of the  trial  court.
\nAgain there is no case of any irretrievable injury either of
\nthe type as held in the case of Itek Corpn.6 as there is  no
\ndifficulty in the judgment of this country being  executable
\nin the courts in Sweden.\n<\/p>\n
87.The\tHigh  Court  was  not right  in\t working  on  mere
\nsuspicion of fraud or merely going by the allegations in the
\nplaint\twithout\t prima facie case of fraud being  spelt\t out
\nfrom the material on record.\n<\/p>\n
88.The\tHigh  Court was also in error in  considering  the
\nquestion of balance of convenience.  In law relating to bank
\nguarantees,  a\tparty seeking injunction from  encashing  of
\nbank guarantee by the suppliers has to show prima facie case
\nof   established   fraud  and\tan   irretrievable   injury.
\nIrretrievable injury is of the nature as noticed in the case
\nof  Itek  Corpn.6 Here there is no such problem.   Once\t the
\nplaintiff  is able to establish fraud against the  suppliers
\nor suppliers-cum-lenders and obtains any decree for  damages
\nor  diminution in price, there is no problem  for  effecting
\nrecoveries  in a friendly country where the bankers and\t the
\nsuppliers are located.\tNothing has been pointed out to show
\nthat  the  decree passed by the Indian Courts could  not  be
\nexecutable in Sweden.\n<\/p>\n
89.The High Court totally ignored the irretrievable injury
\nwhich  will be caused to defendant 12 in not  honouring\t the
\nbank  guarantee\t in  international market  which  may  cause
\ngrievous  and  irretrievable damage to the interest  of\t the
\ncountry\t  as   opposed\tto  the\t loss  of   money   to\t the
\nborrower\/plaintiff.   There was no question of\tdefendant  4
\nnot making any demand.\tThe instalments for repayment of the
\nloans  had already been fixed and liable to be paid  without
\ndemand\tby defendant 4. Defendant 12 is under a duty to\t pay
\nthe instalments regularly on a fixed date without any demand
\nto defendant 4.\n<\/p>\n
90.We may make it clear that our views are only\t tentative
\nand  prima  facie  for the purpose of the  decision  of\t the
\napplication  for injunction and should not be  construed  as
\nexpression   of\t opinion  at  all  on  the  merits  of\t the
\ncontroversy between the plaintiff and the defendants.\n<\/p>\n
91.For\tthe reasons stated above the appeal  is\t accepted;
\nthe  judgment and order of the High Court dated October\t II,
\n1991 is set aside and that of the
\n531<\/span>
\ntrial  court  dated  August 14, 1991  is  restored  and\t the
\napplication of the borrower\/plaintiff for interim injunction
\nagainst the lenders is dismissed with costs.\n<\/p>\n
532<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Svenska Handelsbanken vs Indian Charge Chrome (Dayal, J.) on 15 October, 1993 Equivalent citations: 1994 AIR 626, 1994 SCC (1) 502 Author: Y Dayal Bench: Yogeshwar Dayal (J) PETITIONER: SVENSKA HANDELSBANKEN Vs. RESPONDENT: INDIAN CHARGE CHROME (Dayal, J.) DATE OF JUDGMENT15\/10\/1993 BENCH: YOGESHWAR DAYAL (J) BENCH: YOGESHWAR DAYAL (J) VERMA, JAGDISH […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-269781","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nSvenska Handelsbanken vs Indian Charge Chrome (Dayal, J.) on 15 October, 1993 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/svenska-handelsbanken-vs-indian-charge-chrome-dayal-j-on-15-october-1993\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Svenska Handelsbanken vs Indian Charge Chrome (Dayal, J.) on 15 October, 1993 - 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