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Road Machines (India) Pvt. Ltd. Vs. the Projects and Equipment Corporation of India Ltd. and anr. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtKolkata High Court
Decided On
Case NumberSuit No. 947 of 1981
Judge
Reported inAIR1983Cal91
ActsContract Act, 1872 - Section 126; ;Specific Relief Act, 1963 - Sections 38 and 41
AppellantRoad Machines (India) Pvt. Ltd.
RespondentThe Projects and Equipment Corporation of India Ltd. and anr.
Cases Referred(f) United Commercial Bank v. Bank of India
Excerpt:
- .....sometime in dec., 1981 the following reliefs have been claimed:(a) a declaration that the said bank guarantee dated 9th oct., 1980 and a demand dated 21st nov., 1981 are and/or have become illegal, null and void, inoperative, un-forceable and of no effect and not binding either on the plaintiff or the defendant no. 2. (b) delivery up of the said bank guarantee and the said demand for cancellation. (c) a permanent injunction restraining the defendant no. 1 from acting or purporting to act in pursuance of or in accordance with the said bank guarantee or the said demand or receiving ,or purporting to receive any payment in pursuance thereof or either of them in any way. (d) a permanent injunction restraining the defendant no. 2 from making or purporting to make any payment or acting or.....
Judgment:
ORDER

Dipak Kumar Sen, J.

1. The plaintiff, Road Machines (India) Private Ltd., in this application made in the above suit, is seeking to prevent invocation of a Bank Guarantee dated the 9th Oct., 1980 which was issued in favour of the Projects and Equipment Corporation of India Ltd., the defendant No. 1 by the United Bank of India, the defendant No. 2 whereby the defendant No. 2 guaranteed irrevocably and unconditionally that the plaintiff would perform their obligations in respect of timely delivery of goods, quality of goods delivered and other conditions as contained in a Contract dated 8th Aug., 1980 entered into by and between the plaintiff and the defendant No. 1 and in default of the plaintiff to honour the said obligations to pay to the extent of Rs. 1,52,760/- to the defendant No. 1. The Letter of Guarantee further provided that:

(a) the decision of the defendant No. 1 as to the liability of the defendant No. 2 under the said guarantee and the amount payable thereunder would be final and binding on the defendant No. 2 and that a certificate issued by the defendant No. 1 in this regard would be conclusive and binding on the defendant No. 2.

(b) the said guarantee would not be affected by any indulgence shown by the defendant No. 1 to the plaintiff without reference to the defendant No. 2 and/or by any change, amendment, modification or alteration that may be effected in the contract concerned without reference to the defendant No. 2.

2. Under the said contract dated the 8th Aug., 1980 the plaintiff was required to supply 107 road dumpers to the defendant No. 1 on stipulated terms and conditions. It was a term of the contract that deliveries under the contract would be F. O. B. Bombay or Calcutta Port subject to a 'Force Majeure' clause.

3. The clauses in the contracts relating to 'Force Majeure' are as follows:

'(a) If at any time during the continuance of this contract either party is unable to perform, in whole or in part, any obligation under this contract because of Force Majeure, then the date of fulfilment of such obligation shall be postponed during such time as the circumstances of Force Majeure are operative.

(b) Force Majeure means all events outside the control of the parties hereto which cannot be foreseen or if foreseeable, are unavoidable and which occur after the date of signature of this contract and which prevent or hinder the performance of obligations or any of them under it and without being limited thereto. It includes, war, hostility, military operations of any character, acts of public enemy, civil commotion, sabotage, lock-outs, fire, floods, explosions, epidemics, quarantine restriction, acts of God, nonavailability of vessels and acts of Government (including but not restricted to prohibition of exports or imports). Any waiver/ extension of time in respect of a delivery of any instalment or part of the goods shall not be deemed to be a waiver/extension of time in respect of the remaining deliveries.

(c) Any party which is unable to fulfil its obligations under the contract shall inform the other about the matter by a written or cabled notice within 30 days after cause OF causes have commenced to occur. A certificate issued by a Chamber of Commerce in the country of the seller or buyer, as the case may be, shall be sufficient proof of the existence of the above circumstances and of their duration.

(d) Where the circumstances of Force Majeure continue for a period of 12 months, either party shall have the right then or at any time thereafter, to cancel the contract by a simple misa en demcure served on the other party without having recourse to any judicial action, as to any part then left unperformed. Such cancellation shall have effect without prejudice to either party's rights to recover any money paid in respect of that portion of the contract so cancelled but without interest, costs or compensation.

(e) Subject to the said right of cancellation, the operation of Force Majeure shall entitle both parties such extended times of performance as may be agreed mutually between the Buyer and the Seller.

4. In this suit filed sometime in Dec., 1981 the following reliefs have been claimed:

(a) A declaration that the said Bank Guarantee dated 9th Oct., 1980 and a demand dated 21st Nov., 1981 are and/or have become illegal, null and void, inoperative, un-forceable and of no effect and not binding either on the plaintiff or the defendant No. 2.

(b) delivery up of the said Bank Guarantee and the said demand for cancellation.

(c) a permanent injunction restraining the defendant No. 1 from acting or purporting to act in pursuance of or in accordance with the said Bank Guarantee or the said demand or receiving ,or purporting to receive any payment in pursuance thereof or either of them in any way.

(d) a permanent injunction restraining the defendant No. 2 from making or purporting to make any payment or acting or purporting to act in pursuance of or in accordance with the said Bank Guarantee or the said demand in any way.

(e) a declaration that the plaintiff was and is discharged from any further performance of the said contract.

(f) a decree for Rs. 50,000/-.

5. In the present application made on a notice dated the 14th Dec., 1981 inter alia the following orders have been prayed for :

(a) An injunction restraining the defendant No. 1 either by itself or its servants or agents or otherwise howsoever from acting or purporting to act in pursuance of or in accordance with the said Guarantee and/or the demand dated 21st Nov., 1980 or receiving or purporting to receive any payment in pursuance thereof or either of them in any way.

(b) An injunction restraining the defendant No. 2 from making or purporting to make any payment or acting or purporting to act in pursuance of or in accordance with the said Bank Guarantee or the said demand in any way.

6. The case of the plaintiff in its application is, inter alia, that the said Guarantee has been invoked on the allegation of default of the plaintiff in satisfactory execution of the said contract but that on the date of the Invocation no contract existed between the parties and/or a new contract had been substituted.

7. There is no allegation that there was any failure on the part of the defendantNo. 1 to perform any specified obligation under the said contract on which alone the said Guarantee could be invoked.

8. A condition precedent to the invocation of the said Guarantee was a decision of the defendant No. 1 as to the liability of the defendant No. 2 which had not been taken by the defendant No. 1.

9. It was not established by the defendant No. 1 that the plaintiff had failed to perform all or any of the obligations under the contract. The plaintiff in any event did not fail to perform its obligations or any of them under the contract.

10. The defendant No. 2 has not appeared in these proceedings. At the instance of the defendant No. 1 this application has been heard without any affidavit being filed on its behalf. The defendant No. 1 was however given leave to rely on documents, copies whereof have been filed. It is recorded that the defendant No. 1 does not admit the allegations in the petition.

11. It appears from the documents produced by the defendant No. 1 that the conditions of the contract were varied and/or altered from time to time. The original quantity of 107 road dumpers was reduced to 96 and the time to deliver the same was extended up-till 31st Dec., 1981. The plaintiff it appears has up-till now supplied only 32 dumpers.

12. At the hearing learned counsel for the plaintiff reiterated the contention in the petition and contended further that the in-vocation of the said guarantee must be strictly in compliance with its terms. The defendant No. 1 was required to furnish full particulars of the failure of the plaintiff to perform its obligations under the contract at the time of invocation which should be construed as strictly as a plaint in a suit.

13. Learned counsel for the defendant No. 1 has contended to the contrary. He submitted that the guarantee was irrevocable and any alteration in the main contract would have no effect on the guarantee and the decision of the defendant No. 1 the beneficiary under the Guarantee would be final and could not be challenged by the defendant No. 2. The plaintiff, it was submitted, was not a party to the Guarantee and was not entitled to impugn the said Guarantee.

14. In support of the respective contentions of the parties the following decisions have been cited at the Bar:

(a) Mineral and Metal Trading Corporation v. Suraj Balaram Sethi, reported in (1970) 74 Cal WN 991. This decision neednot be considered further inasmuch as the terms of the Guarantee involved are not the same as those in the Guarantee in this case. There is, however, an observation in the judgment that a contract of guarantee could be formulated in such a manner as to prevent an injunction being issued.

(b) Bird and Company v. Tribunal Jute Mills, reported in (1979) 83 Cal WN 802. In the guarantee in this case there was a specific clause that the decision of the purchaser, whether the contractor has made any default in repayment of the advances would be binding on the Bank which would not be entitled to raise any dispute on such decision. In view of the said provision an interim injunction was refused.

(c) Texmaco Ltd. v. State Bank of India, reported in (1979) 83 Cal WN 807. The guarantee in this, case was more or less in the same terms as the guarantee in the instant case and construing the same, a Division Bench of this Court held that prima facie, the beneficiary and/or the guarantee was entitled to enforce the liability thereunder. An order of the Court of the first instance refusing to issue an interim injunction was upheld.

(d) Harprasad & Co. Ltd. v. Sudarsan Steel Mills, reported in : AIR1980Delhi174 . In this case a Division Bench of the Delhi High Court, while accepting that liability arising out of a Bank Guarantee or performance bond was absolute, held that the terms of a particular document may constitute an exception to the general rule. The Bank Guarantee in that case required that the beneficiary should give a written notice to the bank concerned for its performance, and the Court held that such written, notice should be complete and contain all particulars including facts showing that the conditions of the Bank Guarantee have been fulfilled in the same way as a plaint had to disclose a cause of action. It was further held that without such a written notice the bank guarantee need not be honoured by the Bank.

(e) Shreeram Cloth Stores v. Trading Corporation of Bangla Desh, reported in (1980) 1 Cal HC Notes 132. In this case a performance guarantee had been furnished by way of security for the due performance by one of the parties to the contract. In the facts and circumstances of the case, it was held by a Division Bench of this Court that the party concerned had failed to perform its obligations under the contract viz. sale and export to Bangla Desh certain items of cloth. It was also found that the exportcould not be performed as the foreign party failed to give intimation of the amendment and consequential extension of the period of letter of credit in accordance with the amended terms of the contract between the parties. The allegations in the petition in that case had not been denied by the foreign party concerned and it was held that the bank guarantee had not prima facie become enforceable.

(f) United Commercial Bank v. Bank of India, reported in : [1981]3SCR300 . This decision was cited for the following observations of the Supreme Court on the enforce-ability of a bank guarantee.

'A bank issuing or confirming a letter of credit is not concerned with the underlying contract between the buyer and seller. In view of the banker's obligation under an irrevocable letter of credit to pay, his buyer-customer cannot instruct him not to pay. The opening of a confirmed letter of credit constitutes a bargain between the banker and the vendor of the goods which imposes on the banker an absolute obligation to pay. The same considerations apply to a bank guarantee. A letter of credit sometimes resembles and is analogous to a contract of guarantee. A bank which gives a performance guarantee must honour that guarantee according to its terms.'

'The Courts usually refrain from granting injunction to restrain the performance of the contractual obligations arising out of letter of credit or a guarantee between one bank and another. If such temporary injunctions were to be granted in a transaction between a banker and a banker, restraining a bank from recalling the amount due when payment is made under reserve to another bank or in terms of the letter of guarantee or credit executed by it, the whole banking system in the country would fail. It is only in exceptional cases that the Courts will interfere with the machinery of irrevocable obligations assumed by banks. They are the life-blood of international commerce. The machinery and commitments of banks are on a different level. They must be allowed to be honoured, free from interference by the Courts. Otherwise, trust in international commerce could be irreparably damaged.'

15. With great respect I am unable to accept the principles laid down by the Division Bench of the Delhi High Court in M/s. Harprasad and Co. Ltd. (supra) to the effect that a bank guarantee should be invoked in an exact and punctilious manner setting out the entire case of the beneficiary under theguarantee in the same way as setting out a cause of action in a plaint A bank guarantee is a commercial document and is neither a statutory notice nor a pleading in a legal proceeding. In my view, a bank guarantee may be invoked in a commercial manner. The invocation would be sufficient and proper if the bank concerned understands that the guarantee is being invoked by the beneficiary in terms of the guarantee.

16. The guarantee in the instant case provides that the same can be invoked if the plaintiff failed to perform the obligation under the parent contract. The said guarantee is unconditional and irrevocable and records that the decision of the defendant No. 1 as to the liability of the Bank under the guarantee would be final and binding on the Bank and a certificate issued by the defendant No. 1 would be similarly conclusive and binding.

The Guarantee in its terms would not be affected by any change, modification or alteration in the parent contract without reference to the Bank.

17. In view of the clear language of the guarantee it is not open to the bank to question the judgment of the defendant No. 1. The defendant No. 1 in its turn appears to be bound by a similar guarantee to the foreign buyer, being the Government of Mauritius as will appear from the documents disclosed by the defendant No. 1.

18. It appears, prima facie, in the facts brought out that the plaintiff has failed to perform the whole of the contract and ship the goods within the stipulated time. The Force Majeure clause does not appear to have been raised by the plaintiff with the defendant No. 1 at any material time. The contentions raised by the plaintiff therefore cannot be sustained.

19. The only point raised which needs consideration is that, in the letter of the defendant No. 1 invoking the Guarantee it has not been specifically stated that the plaintiff has failed to fulfil its obligations under the contract. All that is stated in the letter dated the 21st Nov., 1981 is that the plaintiff had defaulted in 'satisfactory execution of the abovementioned export contract'.

20. If, I restrain the invocation of the guarantee on this ground alone it will not benefit the plaintiff, ultimately as it will be open to the defendant No. 1 to issue a letter forthwith in the required language of invocation.

21. The said guarantee is otherwise irrevocable and unconditional, it cannot be heldthat the plaintiff has established any exceptional circumstance on which the recognised principles laid down by the highest authorities should not be followed.

22. For the reasons above there will be no order on this application.

23. Costs costs in the cause.

24. All interim orders are vacated.

25. All parties to act on a signed copy of the minutes of this order on the usual undertaking.

26. On an oral application made on behalf of the plaintiff the operation of this order is stayed till 25th Jan., 1982.


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