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idcol Cement Ltd., Represented by Its Senior Deputy Manager (Legal) Vs. Fuller India Ltd. and anr. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai High Court
Decided On
Reported in(1998)2MLJ654
Appellantidcol Cement Ltd., Represented by Its Senior Deputy Manager (Legal)
RespondentFuller India Ltd. and anr.
Cases ReferredA.B.C. Laminart (P) Ltd. v. A.P. Agencies
Excerpt:
- constitution of india article 141; [a.p. shah, c.j., f.m. ibrahim kaliffulla &v. ramasubramanian, jj] reference to larger bench - precedent - full bench decision held, it is binding on the division bench. only if the full bench comes to conclusion that earlier full bench decision is incorrect, there is scope for making reference to larger bench. division bench doubting correctness of full bench decision cannot direct registry for placing papers before chief justice to make reference to larger bench. orders.s. subramani, j.1. this revision is under article 227 of the constitution of india filed by the first defendant in o.s.no.140 of 1998, on the file of 18th assistant city civil court, madras.2. first respondent herein, as plaintiff, filed the suit for declaration declaring that the first defendant is not entitled to invoke bank guarantee nos.362/91-92 and 363/91-92, dated 5.3.1992 and extended from time to time upto 15.12.1997 with claim period upto 14.1.1998, and also for an order of ad interim injunction restraining the second defendant and bank from paying any sum covered under the said bank guarantee.3. it is alleged in the plaint that the plaintiff and first defendant entered into a contract on 10.4.1992 as supplier and purchaser wherein plaintiff agreed to supply plant and.....
Judgment:
ORDER

S.S. Subramani, J.

1. This revision is under Article 227 of the Constitution of India filed by the first defendant in O.S.No.140 of 1998, on the file of 18th Assistant City Civil Court, Madras.

2. First respondent herein, as plaintiff, filed the suit for declaration declaring that the first defendant is not entitled to invoke Bank Guarantee Nos.362/91-92 and 363/91-92, dated 5.3.1992 and extended from time to time upto 15.12.1997 with claim period upto 14.1.1998, and also for an order of ad interim injunction restraining the second defendant and bank from paying any sum covered under the said Bank Guarantee.

3. It is alleged in the plaint that the plaintiff and first defendant entered into a contract on 10.4.1992 as supplier and purchaser wherein plaintiff agreed to supply plant and equipment and mandatory spares therefor and incidental services like supervision of erection, startup, commissioning, conducting performance trails and demonstration of guaranteed performance, training of personnel, etc., under I.C.B. package No.03 particularly consisting of raw material drying and grinding, cement meal continuous blending and kiln feed, clinker manufacturing fuel (Coal) drying and grinding, slag drying and grinding, cement grinding, cement and also mixing and cement storage and packing plants and mandatory spare parts for modernisation/substantial expansion of cement project of the first defendant. Pursuant to the agreement and in terms therefore plaintiff has executed two performance security guarantees through second defendant-Bank, one for Rs. 1,18,01,455 and another for Rs. 1,24,08,535. It is further stated in the plaint that the Bank guarantees given towards performance security are to be discharged by the first defendant not later than 30 days following the date of completion of the plaintiff's performance trials which is to be completed within 6 months of commissioning of the plant of 18 months from the date of receipt of last equipment at the site. It is said that the first defendant, under the relevant clause of the agreement is entitled to adjust for all the claims of the first defendant due to failure to complete the obligations by the plaintiff in respect of the following three items : (i) Liquidated damages due to delay in delivery of documents and/or technical date as specified in Clause 8 of social conditions of Contract; (ii) Liquidated damages due to delay in delivery of goods and services; and (iii) compensation due to non shortfall in performance of equipment in terms of capacities, etc.

4. It is the case of the plaintiff that for a shortfall in performance of slag grinding and packing operation of the plant, plaintiff had paid a compensation to 1st defendant in a sum of Rs. 1,35,34,610. It is further said that for packer's non-performance, it was agreed between the parties that plaintiff will bear the replacement cost of the packing machine, the screen and ancillary equipment, if required to be selected jointly, and in consequence thereof, first defendant was compensated in a sum of Rs. 1,15,50,610 for non-performance of the slag grinding, it was further agreed between the parties that the plaintiff will pay to the first defendant a sum of Rs. 19,84,000 as compensation. Likewise, the first defendant had agreed that a sum of Rs. 28,48,747 due by them to the plaintiff may be educational and a sum of Rs. 1,06,85,863 alone need by paid to the first defendant under the above heads, which amount was also paid by the plaintiff. In view of the above settlement or agreement between the parties, it is the case of the plaintiff that the first defendant is bound to return the bank guarantees which were valid upto 15.11.1997 having a claim period upto 14.12.1997. But, instead of returning the Bank guarantees, first defendant insisted by letter dated 10.12.1997 that the bank guarantees must be extended and even without waiting for extension by plaintiff, on the same day, first defendant clandestinely wrote to the second defendant-Bank invoking the entire money covered by the two bank guarantees amounting to Rs. 2,42,07,990. This according to the plaintiff, is a fraudulent act on the part of the first defendant and it is further alleged that the plaintiff was coerced to extend the bank guarantees, which they did on 12.12.1997. It is the case of the plaintiff that the performance has already been completed successfully, and for the left over jobs, plaintiff had already been compensated, and nothing more is to be paid. But, in spite of the agreement, first defendant has written to the second defendant invoking the bank guarantee and asked for payment. This according to the plaintiff, will amount to unlawful enrichment. It is further stated that the first defendant is financially in a shaky position, and it will be impossible to recover any amount from it if it is allowed to invoke the bank guarantees, and the plaintiff will be put to irreparable loss. It is for these reasons, the suit was filed for the reliefs stated above.

5. It is seen that the suit was filed on 7.1.1998. Since the petitioner herein (first defendant) had filed caveat, no interim order was passed by the lower court, i.e., 18th Assistant City Civil Court, Madras. It ordered notice returnable by 12.1.1998. This fact was informed by the plaintiff counsel by his letter dated 9.1.1998 to the caveator's counsel Mr. V. Achuthan, on 12.1.1998, the 18th Assistant Judge was on leave, and 13th Assistant Judge was in charge of that court. On 12.1.1998, the following endorsement seems to have been made by the 13th Assistant Judge, as could be seen from the certified copy of the same filed along with the typedset of papers:

Vakalath filed A. Muthukrishnan, Counter by R2, R1, For counter 19.1.1998. R1 vakalath filed. Counsel Mr. Achuthan already filed vakalath. Counter R1 and R2 19.1.1998. Heard. No objection. Ad-interim injunction till then.

6. The statement in the order extracted supra i.e., 'Heard'. No objection was denied by the counsel Mr. Achuthan. He immediately filed a memo before the lower court stating thus:

1. The plaintiff has filed I.A. No.278 of 1998 under Order 39, Rule 1 of C.P.C. for injunction in the above suit. Notice returnable on 12.1.1998 was ordered. There were no interim order whatsoever.

2. The said LA. was called before XIII Assistant City Civil Court which is the court in charge on 12.1.1998. The counsel for first defendant had represented that the Bank guarantees were already invoked and hence no injunction will lie. However the counsel for the first defendant noticed that an entry was made in the A Diary 'I.O.B.' interim order extended, when there was no interim order at all made earlier, A mention was made to XIII Assistant City Civil Judge at about 3.15 p.m. who had told the counsel for first defendant that in all XVIII Assistant City Civil Court matters only interim orders already granted were extended. The court directed the bundle to be put up. thereafter the learned XIII Assistant Judge had, after verifying the bundle in the Chamber, made on interpolation 'No objection from R-1 and R-2.'

It may be placed on record that the counsel for first defendant had not stated no objection to an interim order being passed as purported in the order dated 12.1.1998 in I.A.No.278 of 1998. In fact the counsel for first defendant had during mentioning stated that the interim injunction as prayed for cannot be granted as the same is contrary to settled position of law and the decision reported in (1997)3 L. W. 599. ' The ad-interim injunction was extended till 19.1.1998. It is under these circumstances, the first defendant filed this revision under Article 227 of the Constitution of India, challenging the interim order.

7. It is represented by learned senior counsel for petitioner that there was no interim order, and when there was no interim order, the question of extension also will not arise, and at any rate, the statement in the order that there was no objection is something which he has not stated, and in the order written by the presiding officer on the petition, there seems to be some interpolation. It is said that the lower court has passed the order impugned in this Revision without jurisdiction. According to him, plaintiff has no prima facie case and, therefore, this Court, under its judicial supervisory jurisdiction, has to interfere with the impugned order passed illegally.

8. When the revision petition came for admission on 20.1.1998, I ordered notice of motion returnable by 5.2.1998 and I also wanted all the original records including the plaint to be brought to this Court. The impugned Order was also stayed till 11.2.1998.

9. After I passed the order staying the operation of the impugned order, on 21.1.1998 plaintiff's counsel wanted the matter to be heard and he also requested that the interim order passed by me may not be communicated. He further submitted that if the order is communicated, first defendant is likely to honour the bank guarantee and in such a case, the very suit will become infructuous. He also objected to the various comments made in the Revision Memo about the proceedings that had taken place in the lower court. On his request, the revision was posted for being mentioned on 23.1.1998. When allegation and counter allegations have been made against the procedure adopted by the lower court, learned Counsel on both sides agreed that the entire matter may be heard and a finality arrived thereon. By the time the revision was taken up for final hearing on 23.1.1998, the entire records (original) were also placed before me.

10. Since both parties agreed that the entire matter could be heard by me, I did not want to further probe into the allegations and counter allegations made against the lower court. But I would be failing in my duty if I do not mention that there seems to be some interpolation in the order passed by the lower court. Regarding the circumstances under which those interpolations were made, and whether the allegations made by the petitioner's counsel are true or not, I am not expressing any opinion.

11. Learned senior counsel for petitioner submitted that the suit as well as the injunction application itself is not maintainable,, and at any rate, even if they are maintainable, no case has been made out for granting an ad-interim injunction. Learned senior counsel submitted that the bank guarantees furnished in this case are independent of the main contract entered into between the parties and if the Bank cannot refuse performance, plaintiff is also not entitled to the relief sought for. The Bank has no case that the guarantees executed by it were due to any framed or any other vitiating circumstances. It is further said that the petitioner herein is a Government owned Corporation and, therefore, there is no question of any irreparable injury, warranting the issuance of an order of injunction. It is further said that even to correspondence between the parties will show that the plaintiff was all along a defaulter and was not performing its part of the contract and the plaintiff company was all along pleading to the first defendant to exonerate it from the liability of damages. Even a few days before suit, a letter has been sent by the plaintiff to the first defendant to exonerate it from any further liability and also to have the bank guarantees released. There was a great delay in the performance which entitles the first defendant, petitioner herein, to invoke the bank guarantees, It is further contended that in cases where ordering of bank guarantees is there, unless there is an established fraud (Italics), the court will not interfere. The further argument of learned senior counsel for petitioner is that the court has no jurisdiction to entertain the suit or to pass an order of injunction. The only reason for filing the suit at Madras was, that the second defendant was having an office at Madras where the bank guarantees were executed. That will not give a cause of action so long as there is no allegation against the second defendant. The allegation is only against the first defendant, and its acts are the subject-matter of the litigation, it is further contended that under the terms of the contract, no civil suit is maintainable, and the parties have agreed to abide by Award passed by an Arbitrator.

12. As against the arguments put forward by learned senior counsel for petitioner, learned Counsel for the first respondent herein (plaintiff) submitted that in this case the various correspondence will show that if the bank guarantees are allowed, it will amount to unlawful enrichment by the first defendant. Plaintiff has paid all the amounts that were claimed by the first defendant and it was honestly expecting that the first defendant will return the Bank Guarantees without honouring them or making any claim under the head of 'Liquidated damages'; learned Counsel submitted that even if there is any fraud established, there are 'special circumstances' which justify the court below in passing an order of injunction. It is also alleged by the plaintiff that the first defendant is not in a good financial position and if the Bank Guarantees are allowed to be honoured or encashed, ultimately it will be the loser in the sense that it will not be in a position to recover the amount from the first defendant. It is further said that the agreement regarding arbitration is not a bar for filing the suit. Parties have contemplated to settle their dispute as per Arbitration Act, 1940 which law is not in force as on this date. Regarding jurisdiction, it is contended that since the second defendant has to pay the amount under the bank guarantees and the injunction sought for is against the second defendant, not to honour the bank guarantees, the civil court has jurisdiction.

13. I will first consider the law regarding the grant of injunction in regard to bank guarantees.

14. In Dwarikesh Sugar Industries Ltd. v. Prem Heavy Engineering Works (P) Ltd. : AIR1997SC2477 . in paragarph 24 of the judgment, their Lordship have said that the bank is under an obligation to honour its undertaking in the sense that it has unconditionally agreed to pay the amount on demand, and if the Bank her failed to fulfil its obligation, and if the Bank is not legally entitled to get an injunction, plaintiff who comes to court for the same relief also will not be granted that relief. This is what Their Lordships have said in paragraph 24:

The letter of invocation issued by the appellant demanding the payment of Rs. 26,15,000 was in -accordance with the terms of Bank guarantee No. 40/51 and the Bank was, therefore, under an obligation to honour its undertaking and to make the payment. It, however, chose not to fulfil its obligation. If the Bank could not in law avoid the payment, as the demand had been made in terms of the bank guarantee, as has been done in the present case, then the court ought not to have issued an injunction which had the effect of restraining the Bank from fulfilling its contractual obligation in terms of the bank guarantee. An injunction of the court ought not to be an instrument which is used in nullifying the terms of a contract, agreement or undertaking which is lawfully enforceable....

(Italics)

In that case, Their Lordships considered and have also discussed the previous decisions of the Supreme Court, the circumstances under which alone, injunction could be granted. In paragraphs 21 and 22 of the judgment it has been heard thus:

Numerous decisions of this Court rendered over a span of nearly two decades have laid down and reiterated the principles which the courts must apply while considering the question whether to grant an injunction which has the effect of restraining the encashment of a bank guarantee. We do not think it necessary to burden this judgment by referring to all of them. Some have been considered and reiterated are Svanske Handelsbanken v. Indian Charge Chrome : AIR1994SC626 , Larsen & Toubro Ltd. v. Maharashtra State Electricity Board : AIR1996SC334 , Hindustan Steel Workers Construction Ltd. v. C.S. Atwal & Co. (Engineers) (P) Ltd. : AIR1996SC131 and U.P. State Sugar Corporation v. Sumac International Ltd. : AIR1997SC1644 . The general principles which has been laid down by this Court has been laid down by this Court has been summarised in the case of U.P. State Sugar Corporation, as follows : (S.C.C. P.574, para 12)The law relating to invocation of such bank guarantees is by now well settled. When in the course of commercial dealing an uncondition bank guarantee is given or accepted, the beneficiary is entitled to realize such a bank guarantee in terms thereof irrespective of any pending disputes. The 'bank giving such a guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer. The very purpose of giving such a bank guarantee would otherwise be defeated. The courts should, therefore, be slow in granting an injunction to restrain the realization of such a bank guarantee. The courts have carved out only two exceptions. A fraud in connection with such a bank guarantee would vitiate the very foundation of such a bank guarantee. Hence if there is such a fraud of which the beneficiary seeks to take the advantage, he can be restrained from doing so. The second exception relates to cases where allowing the encashment of an unconditional bank guarantee would result in irretrievable here or injunction to me of the parties concerned. Since in most cases payment of money under such a bank guarantee would adversely affect the bank and its customer at whose instance the guarantee is given, the harm or injustice contemplated under this head must be of such an exceptional and irretrievable nature as would override the terms of the guarantee and the adverse effect of such an injunction on commercial dealings in the country.

Dealing with the question of fraud it has been held that fraud has to be an established fraud.

The following observation of Sir John Donaldson, M.R. in Bolivinter Oil S.A. v. Chase Manhattan Bank (1984)1 All E.R. 351 are apposite:.The wholly exceptional case where an injunction may be granted is where it is proved that the bank knows that any demand for payment already made or which may thereafter be made will clearly be fraudulent. But the evidence must be clear, both as to the fact of fraud and as to the bank's knowledge. It would certainly not normally be sufficient that this rests on the uncorroborated statement of the customer for irreparable damage can be done to a bank's credit in the relatively brief time with must elapse between the granting of such an injunction and an application by the bank to have it discharged.

[Italics as in the reports]

The aforesaid passage was approved and followed by this Court in U.P. Co-op. Federation Ltd. v. Singh Consultants and Engineers (P) Ltd. : [1988]1SCR1124 .

The second exception to the rule of granting injunction, i.e., the resulting of irretrievable injury, has to be such a circumstance which would make it impossible for the guarantor to reimburse himself, if he ultimately succeeds, this will have to be decisively established and it must be proved to the satisfaction, of the court that there would be no possibility whatsoever of the recovery of the amount from the beneficiary, by way of restitution.

[Italics; supplied]

15. In U.P. State Sugar Corporation V. Sumac International Ltd. (1977) 1 S.C.C. 568, their Lordships have said thus in paragraphs 12 to 15:

The law relating to invocation of such bank guarantees is by now well-settled. When in the course of commercial dealings an unconditional bank guarantee is given or accepted, the beneficiary is entitled to realize such a bank guarantee in terms thereof irrespective of any pending disputes. The bank giving such a guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer. The very purpose of giving such a bank guarantee would otherwise be defeated. The courts should, therefore, be slow in granting an injunction to restrain the realization of such a bank guarantee. The courts have carved out only two exception. A fraud in connection with such a bank guarantee would vitiate the very foundation of such a bank guarantee. Hence, if there is such a fraud of which the beneficiary seeks to take advantage, he can be restrained from doing so. The second exception relates to cases where allowing the encashment of an unconditional bank guarantee would result in irretrievable harm or injustice to one of the parties concerned. Since in most cases payment of money under such a bank guarantee would adversely effect the bank and its customer at whose instance the guarantee is given, the harm or injustice contemplated under this head must be of such an exceptional and irretrievable natures would override the terms of the guarantee and the adverse effect of such an injunction on commercial dealings in the country. The two grounds are not necessarily connected, though both may coexist in some cases. In the case of U.P. Co-op. Federation Ltd. v.' Singh Consultations and Engineering (P) Ltd. : AIR1997SC1644 which was the case of a works contract where the performance guarantee given under the contract has sought to be invoked, this Court, after referring extensively to English and Indian cases on the subject, said that the guarantee must be honoured in accordance with its terms. The bank which gives the guarantee is not concerned in the least with the relations between the supplier and the customer; nor with the question whether the supplier has performed his contractual obligation or not, nor with the question whether the supplier is in default or not, The bank must pay according to the tenor of its guarantee on demand without proof or condition. There are only two exceptions to this rule. The first exception is a case when there is a clear fraud of Which the bank has notice. The fraud must be of an egregious nature such as to vitiate the entire underlying transaction. Explaining the kind of fraud that may above a bank from honouring its guarantee, this Court in the above case quoted with approval the observation of Sir John Donaldson, M.R. in Boilivintar Oil S.A. v. Chase Manhattan Bank (1984)1 All E.R. 351

at P. 3 52.

The wholly exceptional case where on injunction may be granted is where it is proved that the bank knows that any demand for payment already made or which may thereafter be made will clearly be fraudulent. But the evidence must be clear both as to the fact of fraud and as to the bank's knowledge. It would certainly not normally be sufficient that this rests on the uncorroborated statement of the customer, for irreparable damage can be done to a bank's credit in the relatively brief time which must elapse between the grant of such an injunction and an application by the bank to have it charged.

This Court set aside an injunction granted by the High Court to restrain the realisation of the bank guarantee.

The same question came up for consideration before this Court in Svenska Hamdelshankan v. Indian Charge Chrome : AIR1994SC626 this Court once again reiterated that a confirmed bank guarantee irrevocable letter of credit cannot be interfered with unless there is established fraud or irretrievable injury has to be of the nature noticed in the case of Itak Corporation v. First National Bank of Boston. On the question of fraud this Court confirmed the observations made in the case of U.P. Co-op. Federation Ltd. : [1988]1SCR1124 and stated that the fraud must be that of the beneficiary, and not the fraud of anyone else.

On the question of irretrievable injury which is the second exception to the rule against granting of injunction when unconditional bank guarantees are sought to be realised the court said in the above case that the irretrievable injury must be of the kind which was the subject matter of the decision in the Itak Corporation case. In that case an exporter in U.S.A. entered into an agreement with the Imperial Government of Iran and sought an order terminating it liability on stand by letter of credit issued by an American banking favour of an Iranian Bank as part of the contract. The relief was sought on account of the situation created after the Iranisn revolution when the American Government cancelled the export licences in relation to Iran and the Iranian Government had forcibly taken 52, American citizen as hostages. The U.S. Government had blocked all Iranian asset under the jurisdiction of United States and had cancelled, the export contract. The court upheld the contention of exporter that any claim for damages against the purchaser if decreed by the American Courts would not be executable in Iran under these circumstances and realisation of the bank guarantee letters of credit would cause irreparable have to the plaintiff. This contention was upheld. To avail of this exception, therefore, exceptional circumstances which make it impossible for the guarantor to reimburse himself if he ultimately succeeds, will have to be decisively established. Clearly, a mere apprehension that the other party will not be able to pay is not enough. In Itak case there was a certainty on this issue. Secondly, there was good reason, in that case for the court to be prima facie satisfied that the guarantors i.e., the bank and its customer would be found entitled to receive the amount paid under the guarantee.

15. Our attention was invited to a number of decisions on this issue - among them, to Larsen and Toubro Ltd. v. Maharashtra State Electricity Board, and Hindustan Steel Workers Construction Ltd. v. C.S. Atwal & Co. (Engineers) (P) Ltd., the latest decision is in the case of State of Maharashtra v. National Construction Co. where this Court has summed up the position by stating : (S.C.C. p.741, para 13)

The rule is well established that a bank issuing a guarantee is not concerned with the underlying contract between the parties to the contract. The duty of the bank under a performance guarantee is created by the document itself. Once the documents are in order the bank giving the guarantee must honour the same and made payment ordinarily unless there is an allegation of fraued or the like. The courts will not interfere directly or indirectly to withhold payment, otherwise trust in commerce internal and international would be irreparably damage. But that does not mean that the parties to the underlying contract cannot settle the disputes with respect to allegations of breach by resorting to litigation or arbitration as stipulated in he contract. The remedy arising ex contractu is not barred and the cause of action for the same is independent of enforcement of the guarantee.

[Italics supplied]

The other recent decision is in Hindustan Steel Works Construction Ltd. v. Tarapore & Co

Their Lordships have further held thus in para 16 of the same judgment:

Clearly, therefore, the existence of any dispute between the parties to the contract is not a ground for issuing an injunction to restrain the enforcement of bank guarantees. There must be fraud in connection with the bank guarantee. ...

[Emphasis supplied]

The same principle was reiterated in the decision reported in Fenner (India) Ltd. v. Punjab and Sind Bank : AIR1997SC3450 .

16. It is only on the basis of these principles, the court has also jurisdiction to grant an interim order.

17. Now let us consider what are the terms of the bank guarantee in this case. I need only extract the relevant portion of one of the bank guarantees executed by the second defendant.

Therefore, We, Canara Bank, 787, Mount Road, Chennai-600 002, hereby affirm that we are guarantors and responsible to you on behalf of the Prima Supplier, upto a total of Rs. 1,24,06,535 (Rupees one crore twenty-four lakhs six thousand five hundred and thirty five only) and we undertake to pay you, upon your first written demand declaring the Prime supplier to be in default under the Contract and without cavil or argument, any sum or sums within limits of Rs. 1,24,06,535 (Rupees One Crore Twenty four Lakhs six thousand five hundred and thirty five only) as aforesaid, without your needing to prove or to show grounds or reasons for your demand or the sum specified therein.

NOTWITHSTANDING anything contained in the foregoing paragraph our liability under the guarantee is restricted to Rs. 1,24,06, 535 (Rupees one crore twenty four lakhs six thousand five hundred and thirty five only). Our guarantee shall remain in force upto 15th July, 1997 unless a demand is received by us within 30 days from the said the date i.e., on or before 14th August, 1997 all rights of the purchaser under this guarantee shall be forfeited and we shall be relieved and discharged from all liability thereunder.

It is not disputed that the same has been extended by mutual agreement. It is also settled law that the bank cannot impose any condition for honouring its undertaking so long as it is not challenged regarding the wordings therein. It is an unconditional bank guarantee, and the alleged dispute between plaintiff and first defendant will not be an excuse for not honouring the guarantee. In fact, the bank has no such case, It is only the plaintiff which has come to Court stating that there is dispute between itself and first defendant, and says that the bank guarantees should not be honoured. The alleged dispute has no place, and the same need not be taken into consideration by court unless the plaintiff says that there is fraued in taking the bank guarantee and there will be irretrievable injury.

18. Regarding irretrievable loss, except the allegation in the plaint, there is no even an iota of evidence. The petitioner (first defendant) is a Government-owned Corporation. In the affidavit filed in support of the injunction application, the plaintiff has no case of any irretrievable loss or there is any allegation that the petitioner is in financial difficulties. The Supreme Court has considered these aspects and has held that even in respect of an industry/company which is not performing well and proceedings ae initiated under sick Industries Laws, honouring or bank guaranteed should not be injuncted. Again, is the case on hand, regarding irretrievable injury, there is only an allegation. The Supreme Court has said that there must be evidence to establish that the amount cannot be realised, and consequently there will be irretrievable injury.

19. Regarding the ground of fraud, as I said earlier, even the plaint does not disclose any fraud, and the Bank has also no case that it had to execute the documents under fraudulent or vitiating circumstances. Even in cases of allegation of fraud, the Supreme Court has said that it must be an 'established fraud', The case put forward by the plaintiff is that if the Bank guarantees are allowed to be honoured, the first defendant will be unlawfully enriched. I do not think that the said allegation itself alone will be sufficient to prevent the first defendant i.e., petitioner herein, from invoking it rights under the contract.

20. Even the said allegation has no substance. The entire correspondence between the parties is before me. It is seen therefrom that the plaintiff was delaying the whole matter of course, certain excuses have been given. Even in the plaint, it is admitted that it had to compensate the first defendant on various counts. The plaintiff only says that the compensation paid by it was on the basis of an agreement that the plaintiff will not honour the bank guarantees. Regarding that fact, there is no evidence and none of the correspondence will advance the case of the petitioner in that regard. From the very beginning, the petitioner has been asserting that it has to invoke the Bank Guarantees unless certain terms are complied with. Whether the petitioner was justified in asserting is immaterial, for, the case of the plaintiff, first respondent herein, is that there is an agreement. Even in the last letter sent to the plaintiff a few days prior to the institution of the suit, first defendant has informed the plaintiff that it will be constrained to invoke the bank guarantee unless certain conditions are satisfied. Admittedly plaintiff also did not heed to the said request. The said demand was regarding certain drawings and how they are going to modernise the same.

21. Second defendant has also no case that the notice issued by it is not in terms of the bank guarantees. On 10.12.1997, petitioner informed the Bank stating that the supplier (plaintiff) had defaulted under the agreement and, therefore, they are invoking the Bank Guarantees. The said demand satisfies the wording in the Bank guarantees, which the second defendant is bound to honour. In this connection, it is also better to refer to the letter dated 10.12.1997 written by plaintiff to first defendant. That itself shows that there was delay on the part of the plaintiff in performing its duty. The letter of the first defendant dated 10.12.1997 also shows that it was not agreeable to waive any liability and, therefore, it wanted to extend the validity period of the bank guarantees. Even though there had been various meetings between the parties, no fruitful purpose was served and the plaintiff also has failed in performing the contract.

22. From the documents that are made available in this case, 1 do not think that the plaintiff was successful in its attempt to persuade this Court to grant injunction.

23. Clause 28 of the agreement between the parties provides for arbitration. It further makes mention of jurisdiction in which any proceeding will have to be initiated. It reads thus:

28.0 Resolution of Disputes

28.1 The purchaser and the supplier shall make every effort to resolve amicable by direct informal negotiation any disagreement or dispute arising between them under or in connection with the contract.

28.2 If, after sixty days from the commencement of such informal negotiations, the purchaser and the supplier have been unable to resolve amicably a contract dispute, either party may require that the dispute be referred to arbitration as per Indian Arbitration Act as amended by Orissa Act of 1983 as hereunder:

Any dispute or differences arising out of or in connection with this agreement shall be referred to Arbitration by the Arbitration Tribunal Constituted under Section 41-A of Arbitration Act, 1940 as amended by the Orissa Act 3 of 1983 : and the said arbitration proceedings shall be regulated by the provisions of the Arbitration Act, 1940 as amended in Orissa and the rules made thereunder. 28.3 The contract will be governed and constituted by the laws of India as applicable in Orissa and the courts of Bargarh courts having jurisdiction over Bargarh shall have jurisdiction with respect to all matters related to this contract.

24. As per this contract, the suit cannot be filed before the City Civil Court, Parties have agreed to initiate any proceeding in the courts of Bargarh, i.e., within the jurisdiction where the petitioner/Company is situated. Plaintiff has no case that that court has no jurisdiction. If two courts have jurisdiction, parties are at liberty to choose the one and exclude the other, and such contract is a valid contract. If any legal position is required, I only refer to the decision reported in Cholamandalam Investments & Finance Company v. Radhika : [1996]1SCR495 . In paragraph 6 of that decision, Their Lordships have said thus:

It is settled law that where two courts have jurisdiction to adjudicate upon any dispute, the parties by a contract can submit to the jurisdiction of one and exclude the jurisdiction of the other...

In that view of the matter, plaintiff should not have filed the suit before the City Civil Court. The only reason for filing the suit before the City Civil Court is that the office of the second defendant is situated within the jurisdiction of City Civil Court, Madras and also for the reason that the bank guarantees have been executed by the second defendant. It is not the case of the plaintiff that the second defendant has done any acts against its interest. The entire allegation in the plaint is that the first defendant has done certain acts and, therefore, the bank guarantee as should not be invoked. In such cases, the Supreme Court has held that the place where the performance guarantee is executed will have no jurisdiction. It was so held in South East Asia Shipping Co. Ltd. v. Nav Bharat Enterprises Pvt. Ltd. : [1996]3SCR405 . In that case, the only ground stated was that the Bank guarantee was executed within the jurisdiction of Delhi High Court and, therefore, the suit was filed in Delhi High Court. A learned Judge of the Delhi High Court did not accept the case of the plaintiff and directed return of the plaint. But the same was reversed by a Division bench holding that since bank guarantee was executed and payments were made at Delhi, the Delhi High Court has jurisdiction. The correctness of the judgment of the Division Bench was challenged before the Supreme Court in South East Asia Shipping Company Ltd. v. New Bharat Enterprises : [1996]3SCR405 . Their Lordships, after taking note of the decision reported in A.B.C. Laminart (P) Ltd. v. A.P. Agencies : [1989]2SCR1a , which was relied on by learned Counsel for plaintiff in that case, held thus:

It is settled law that cause of action consists of bundle of facts which give cause to enforce the legal injury for redress in a court of Law. The cause of action means, therefore, every fact, which if traversed, it would be necessary for the plaintiff to prove in order to support his right to a judgment of the Court, In other words, it is a bundle of facts, which taken with the law applicable to them, gives the plaintiff a right to claim relief against the defendant, It must include some act done by the defendant since in the absence of much an act no cause of action would possibly accrue or would arise. In view of the admitted position that contract was executed in Bombay, i.e., within the jurisdiction of the High Court of Bombay, performance of the contract was also to be done within the jurisdiction of the Bombay High Court, merely because bank guarantee was executed at Delhi and transmitted for performance to Bombay, it does not constituted a cause of action to give rise to the respondent to lay the suit on the original side of the Delhi High Court. The contention that the Division Bench was right in its finding and that since the Bank guarantee was executed and liability was enforced from the bank at Delhi, the court got jurisdiction, cannot be sustained.

[Italics supplied]

The facts here are also similar and I am bound by the judgment of the Supreme Court referred to above,

25. I have met all the contentions raised by learned Counsel for both parties, and I feel that this is a fit case where the plaintiff is not entitled to get injunction, and I also hold that the suit should not have been entertained by the court in which it was instituted. Even though in this revision the petitioner has challenged the Order of injunction passed in the I.A., when the entire records are before this Court, I do not think that there will be any prohibition in exercising the judicial supervisory jurisdiction and to correct the patent errors committed by the court below. The lower court, while passing the impugned order has also not taken into consideration the relevant clause in the contract and also the averments in the plaint regarding the cause of action. If only the lower court had considered those statements, probably it might not have granted the order. The lower court has passed the order as a matter of course without application of mind. Court of law is not expected to pass such an order, Consequently by invoking the jurisdiction under Article 227 of the Constitution of India, I hold that the suit ought not to have been entertained the City Civil Court, Madras, and I direct the lower court to return the plaint to the plaintiff for presentation of the same before proper court.

26. In the result, the revision petition is allowed with costs. The impugned order in I.A.No. 276 of 1998 in O.S.No.140 of 1998, on the file of XIII Assistant City Civil Court, Madras, is set aside. The said interlocutory application stands dismissed. The lower court is directed to return the plaint to the plaintiff for presentation before proper court. In this revision, counsel fee is quantified at Rs. 3,000 (Rupees three thousand). C.M.P.No.470 of 1998 for stay is closed.


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