Fenner India Limited vs BSES Limited and Another

This Judgment has been overruled by : BSES Ltd. (Now Reliance Energy Ltd.) Vs. Fenner India Ltd. and Another, AIR 2006 SC

1148 : (2006) 1 ARBLR 388 : (2006) 2 BC 20 : (2006) 130 CompCas 8 : (2006) 2 CompLJ 430 : (2006) 2 CTC 137 : (2006) 1 CTLJ

228 : (2006) 2 JT 192 : (2006) 143 PLR 227 : (2006) 2 SCALE 186 : (2006) 2 SCC 728 : (2006) AIRSCW 721 : (2006) 2 Supreme

106

K. Govindarajan, J.—The above appeal is preferred against the order dated 22.03.2004 passed by the learned Principal District Judge,

Madurai, dismissing Ar. O.P. No. 1/2003 filed u/s 9 of the Arbitration and Conciliation Act, 1996, hereinafter called ''the Act'', directing the

parties to maintain status quo for a period of one month from the date of the said order.

The 1st respondent was awarded with the contract by Godavari Sugar Mills Limited for construction of a Captive Power Plant in their factory at

Sameerwadi, Karnataka. The 1st respondent, in turn, awarded a part of that work to the appellant for the value of Rs. 70,00,000, Rs.

5,57,00,000 and Rs. 90,00,000, totalling a sum of Rs. 7,17,00,000 under three contracts namely :

(1) Design and Engineering.

(2) Supply of equipment.

(3) Civil works.

Pursuant to the said contract, four bank guarantees namely :

B.G. Nos. El/288/99, 289/99, 290/99 and 291/99 of the value of Rs. 7,00,000, Rs. 55,70,000, Rs. 9,00,000 and Rs. 38,35,000 respectively,

towards advances and security deposit were given by the appellant and such bank guarantees were executed on 23.03.2000. The expiration of the

said bank guarantees also was extended from time to time at the instance of the appellant.

The appellant had completed the assigned work and also did additional work to the tune of Rs. 360 lakhs. But, according to the appellant, the

1st respondent has not only not paid the balance contract amount of Rs. 80.7 lakhs but also the amount payable towards additional work of a sum

of Rs. 360 lakhs. Meanwhile, the 1st respondent sent a letter to the appellant asking the appellant to settle the account failing which recovery will

be made from them. It is the further case of the appellant that a fax message was received from the 1st respondent that the 1st respondent is going

to invoke the bank guarantees. At this stage, the appellant invoked Section 9 of the Act and filed Ar. O.P. No. 1/2003 on the file of the District

Court, Madurai seeking an order declaring that the 1st respondent is not entitled to invoke the four bank guarantees issued by the 2nd respondent

bank in favour of the appellant-company under the bank guarantees as set out earlier, or receive payment of any amount under the bank

guarantees from the 2nd respondent bank, pending adjudication of the disputes including the dispute relating to the above said bank guarantees

through arbitration proceedings in terms of arbitration agreement between the parties and for injunction by way of interim relief. Along with the said

O.P., IA No. 1427/2003 was filed seeking an order of interim injunction. The same was granted.

In the order dated 22.03.2004, the learned District Judge found that the dispute raised has to be decided by the arbitrator. This finding was

given on the basis that the parties have come forward with the conflicting facts regarding the completion of work. The learned District Judge also

found prima facie on the basis of Exs. P13, P14 and P15 that the advance amount has been adjusted in the bills. On that basis, it is found that even

though the appellant is not entitled to an order of injunction, their right must be safeguarded till the matter is disposed of by the arbitrator. Since the

learned District Judge felt that the dispute has to be dealt with and decided only by the arbitrator, the learned Judge dismissed the O.P., directing

the parties to approach the arbitrator for appropriate remedy and taking into consideration the facts of the case, extended the interim order granted

in IA No. 1427/2003 for a period of one month from the date of the said order.

One day prior to the filing of the petition before the District Court, Madurai, the appellant initiated arbitration proceedings invoking Clause 5.3.2

of the contract. The arbitrators were appointed. Before such arbitrators, the appellant filed an application u/s 17 of the Act for the relief with

reference to the bank guarantees. But, admittedly, till date no order is passed by the arbitrators in the said application,

Meanwhile, the appellant preferred the above appeal before this Court challenging the order of the learned District Judge, Madurai.

Learned senior counsel appearing for the appellant submitted that the Court below should not have dismissed the petition, or otherwise, should

have granted the order to maintain status quo pending disposal of the application filed u/s 17 of the Act. Learned senior counsel has referred to the

memorandum of grounds in support of his submission that the appeal is preferred not only restricting the period for one month while granting order

of status quo but also against the dismissal of the petition. He further submitted that to safeguard their interest, they have approached the Court

below u/s 9 of the Act and the Court below has directed the appellant to approach the arbitrators, but the arbitrators are not passing any order

and so the appellant should not be non-suited in this appeal merely because they filed an application u/s 17 of the Act, before the arbitrator as

directed by the learned District Judge, Madurai. If such a view is taken, the appellant is left with no remedy, as the 1st respondent will enforce the

bank guarantees and the application filed u/s 17 of the Act before the arbitrators would become infructuous. Learned senior counsel also pointed

out the averments in the petition filed before the lower Court to the effect that the appellant had also alleged fraud, and irretrievable injustice would

be caused to them if the 1st respondent is allowed to enforce the bank guarantees. It is his further submission, with respect to the finding given by

the learned District Judge, that the advance amount for which 3 out of 4 bank guarantees were given, had been adjusted in the bills. He also stated

that the work had been completed and only the 1st respondent has to pay money to the appellant for the extra work done by the appellant and so

there is a special equity available to grant an order preventing the 1st respondent from enforcing the bank guarantees.

Learned senior counsel appearing for the first respondent submitted that since the learned District Judge has dismissed the O.P., on the basis

that the Court cannot grant injunction restraining the 1st respondent from enforcing the contract in view of the decisions of the Apex Court, the

arbitrator cannot take a different view as the Apex Court has settled the legal principles regarding Courts'' jurisdiction in granting injunction

restraining the person in whose favour the bank guarantee was given. The learned District Judge also should not have granted the interim order.

According to him, the order passed by the learned District Judge is only for a period of 30 days and so they have not challenged the said portion

of the order by preferring appeal. Moreover, the said period of 30 days is over and the question of challenging and setting aside the same do not

arise. Referring to the decisions of the Apex Court, learned senior counsel submitted that no pleading is available with respect to special equity. On

that basis, he submitted that unless the same is established, Court cannot injunct the party, in whose favour the bank guarantees are given, from

enforcing the same as the bank guarantees were given on the basis of separate and distinct contract.

On the basis of the above said pleadings and arguments, the following points arise in this appeal for determination :

(1) Whether the appeal is sustainable after filing an application u/s 17 of the Act before the arbitrator ?

(2) Whether the relief sought for seeking an order in the nature of injunction restraining the 1st respondent from invoking the bank guarantees given

at the instance of the appellant is sustainable in the light of the decisions of the Apex Court ?

The appellant, as stated already, filed the petition u/s 9 of the Act seeking a relief to prevent the respondent from enforcing the bank guarantees

given by the appellant. Though the learned District Judge dismissed the petition, found that the appellant''s right must be safeguarded till the matter

is disposed of by the arbitrator and the said finding was given by the learned District Judge on the impression that within one month''s time the

arbitrators dispose of the application, if filed by the appellant u/s 17 of the Act. In fact, such application was filed on 06.04.2004, but the

arbitrators are yet to pass orders on the said application filed by the appellant due to one reason or the other.

So question now to be decided is whether the appellant is entitled to sustain the appeal against the order passed by the learned Judge after

having approached the arbitrators by filing an application u/s 17 of the Act. In this case, the above appeal is preferred on 19th April, 2004.

Learned senior counsel appearing for the appellant submitted that hoping that the arbitrators would dispose of the application filed u/s 17 of the

Act, the appellant has not challenged the order of the learned District Judge, by filing the above appeal immediately. Since no order was passed till

18.04.2004, the appellant is constrained to prefer the above appeal on 19.04.2004, challenging the said order dated 22.03.2004.

Though the learned senior counsel appearing for the respondent submitted that the appellant has preferred the above appeal only not satisfied

with the time fixed by the learned District Judge, on a perusal of the memorandum of grounds of appeal, we are able to see that the appellant has

also challenged the said order dismissing the petition filed u/s 9 of the Act before the learned District Judge. So on the basis of the above said fact,

we can safely come to the conclusion that the above appeal preferred by the appellant is sustainable, though the application filed u/s 17 of the Act

is pending before the arbitrators. So question of res judicata could not be raised against the appellant to pursue the appeal remedy, as they have

also preferred the appeal questioning the order dismissing their petition filed u/s 9 of the Act. So, we are of the opinion that the present appeal is

sustainable in law.

The appellant has filed the petition u/s 9 of the Act to safeguard their interest preventing the respondent from enforcing the bank guarantees

given by them. As stated already, such bank guarantees were given, one for performance guarantee and others towards payment of advance

money. Learned senior counsel appearing for the first respondent has not disputed the legal principle regarding the scope of Section 9 of the Act to

the effect that Courts are having power to grant interim orders before or during the arbitral proceedings or at a time after making arbitral award to

protect the rights of the parties concerned.

Learned senior counsel also submitted that in respect of bank guarantees, such bank guarantees are given by virtue of separate contracts and

so the beneficiary cannot be restrained by Courts or arbitrators from encashing the guarantees till the decision of the arbitrators or the Court, and

the amount due and payable to the beneficiary, unless fraud or special equity prima facie is made out by specific pleading and evidence regarding

irretrievable injustice to the parties is let in. On such legal submission, learned senior counsel further submitted that in the present case, no such

specific pleading or evidence is available and so the learned District Judge is correct in rejecting the petition filed by the appellant u/s 9 of the Act.

He further submitted that the learned District Judge should not have directed them to maintain status quo till the arbitrators decide the application

u/s 17 of the Act within a month. Even the arbitrators cannot pass any order as requested by the appellant as the above said exceptions are not

available in the present case for granting injunction to prevent the respondent from enforcing the bank guarantees.

To deal with the above said submission of the learned senior counsel appearing for the respondent, it is beneficial to deal with the decided

cases on the present issue.

In the decision in Hindustan Steel Works Construction Ltd. Vs. Tarapore and Co. and another, , the Apex Court while dealing with the

Court''s power in construing the application for injunction regarding enforcement of the bank guarantee, has held as follows :

The High Court also committed a grave error in restraining the appellant from invoking bank guarantees on the ground that in India only a

reasonable amount can be awarded by way of damages even when the parties to the contract have provided for liquidated damages and that a

term in a bank guarantee making the beneficiary the sole Judge on the question of broach of contract and the extent of loss or damages would be

invalid and that no amount can be said to be due till an adjudication in that behalf is made either by a Court or an arbitrator, as the case may be. In

taking that view the High Court has overlooked the correct position that a bank guarantee is an independent and distinct contract between the

bank and the beneficiary and is not qualified by the underlying transaction and the primary contract between the person at whose instance the bank

guarantee is given and the beneficiary. What the High Court has observed would be applicable only to the parties to the underlying transaction or

the primary contract but can have no relevance to the bank guarantee given by the bank, as the transaction between the bank and the beneficiary is

independent and of a different nature. In case of an unconditional bank guarantee the nature of obligation of the bank is absolute and not dependent

upon any dispute or proceeding between the party at whose instance the bank guarantee is given and the beneficiary. The High Court thus failed to

appreciate the real object and nature of a bank guarantee. The distinction which the High Court has drawn between a guarantee for due

performance of a works contract and a guarantee given towards security deposit for that contract is also unwarranted. The said distinction appears

to be the result of the same fallacy committed by the High Court of not appreciating the distinction between the primary contract between the

parties and a bank guarantee and also the real object of a bank guarantee and the nature of the bank''s obligation thereunder. Whether the bank

guarantee is towards security deposit or mobilisation advance or working funds or for due performance of the contract if the same is unconditional

and if there is a stipulation in the bank guarantee that the bank should pay on demand without a demur and that the beneficiary shall be the sole

Judge not only on the question of breach of contract but also with respect to the amount of loss or damage, the obligation of the bank would

remain the same and that obligation has to be discharged in the manner provided in the bank guarantee. In General Electric Technical Services

Company Inc. Vs. M/s. Punj Sons (P) Ltd. and another, , while dealing with a case of bank guarantee given for securing mobilisation advance it

has been held that the right of a contractor to recover certain amounts under running bills would have no relevance to the liability of the bank under

the guarantee given by it. In that case also the stipulations in the bank guarantee were that the bank had to pay on demand without a demur and

that the beneficiary was to be the sole Judge as regards the loss or damage caused to it. This Court held that notwithstanding the dispute between

the contractor and the party giving the contract, the bank was under an obligation to discharge its liability as per the terms of the bank guarantee.

Larsen and Toubro Limited Vs. Maharashtra State Electricity Board and others, and Hindustan Steel Workers Construction Ltd. Vs. G.S. Atwal

and Co. (Engineers) Pvt. Ltd., , were also cases of work contracts wherein bank guarantees were given either towards advances or release of

security deposits or for the performance of the contract. In both these cases this Court held that the bank guarantee being irrevocable and

unconditional and as the beneficiary was made the sole Judge on the question of breach of performance of the contract and the extent of loss or

damages an injunction restraining the beneficiary from invoking the bank guarantees could not have been granted. The abovereferred three

subsequent decisions of this Court also go to show that the view taken by the High Court is clearly wrong.

XXX XXX XXX

We are, therefore, of the opinion that the correct position of law is that commitment of banks must be honoured free from interference by the

Courts and it is only in exceptional cases, that is to say, in the case of fraud or in a case where irretrievable injustice would be done if bank

guarantee is allowed to be encashed, the Court should interfere. In this case fraud has not been pleaded and the relief for injunction was sought by

contractor/respondent 1 on the ground that special equities or the special circumstances of the case required it. The special circumstance and/or

special equities which have been pleaded in this case are that there is a serious dispute on the question as to who has committed breach of the

contract, that the contractor has a counter-claim against the appellant, that the disputes between the parties have been referred to the arbitrators

and that no amount can be said to be due and payable by the contractor to the appellant till the arbitrators declare their award. In our opinion,

these factors are not sufficient to make this case an exceptional case justifying interference by restraining the appellant from enforcing the bank

guarantees. The High Court was, therefore, not right in restraining the appellant from enforcing the bank guarantees.

Similarly, in the decision in Ansal Engineering Projects Ltd. Vs. Tehri Hydro Development Corporation Ltd. and Another, , relying on the

abovesaid decision of the Apex Court in Hindustan Steel Works Construction Ltd. Vs. Tarapore and Co. and another, , the Apex Court has dealt

with the said issue as follows :

It is settled law that bank guarantee is an independent and distinct contract between the bank and the beneficiary and is not qualified by the

underlying transaction and the validity of the primary contract between the person at whose instance the bank guarantee was given and the

beneficiary. Unless fraud or special equity exists, is pleaded and prima facie established by strong evidence as a triable issue, the beneficiary cannot

be restrained from encashing the bank guarantee even if dispute between the beneficiary and the person at whose instance the bank guarantee was

given by the bank, had arisen in performance of the contract or execution of the works undertaken in furtherance thereof. The bank unconditionally

and irretrievably promised to pay, on demand, the amount of liability undertaken in the guarantee without any demur or dispute in terms of the bank

guarantee. The object behind is to inculcate respect for free flow of commerce and trade and faith in the commercial banking transactions

unhedged by pending disputes between the beneficiary and the contractor.

It is equally settled law that in terms of the bank guarantee the beneficiary is entitled to invoke the bank guarantee and seek encashment of the

amount specified in the bank guarantee. It does not depend upon the result of the decision in the dispute between the parties, in case of the breach.

The underlying object is that an irrevocable commitment either in the form of bank guarantee or letters of credit solemnly given by the bank must be

honoured. The Court exercising its power cannot interfere with enforcement of bank guarantee/letters of credit except only in cases where fraud or

special equity is prima facie made out in the case as triable issue by strong evidence so as to prevent irretrievable injustice to the parties. The

trading operation would not be jettisoned and faith of the people in the efficacy of banking transactions would not be eroded or brought to

disbelief. The question, therefore, is whether the petitioner had made out any case of irreparable injury by proof of special equity or fraud so as to

invoke the jurisdiction of the Court by way of injunction to restrain the first respondent from encashing the bank guarantee. The High Court held

that the petitioner has not made out either. We have carefully scanned the reasons given by the High Court as well as the contentions raised by the

parties. On the facts, we do not find that any case of fraud has been made out. The contention is that after promise to extend time for constructing

the buildings and allotment of extra houses and the term of bank guarantees was extended, the contract was terminated. It is not a case of fraud but

case of acting in terms of contract. It is next contended by Shri G. Nageshwara Rao, the learned counsel for the petitioner, that unless the amount

due and payable is determined by a competent Court or tribunal by mere invocation of bank guarantee or letter of credit pleading that the amount

is due and payable by the petitioner, which was disputed, cannot be held to be due and payable in a case. The Court has yet to go into the

question and until a finding after trial, or decision is given by a Court or tribunal that amount is due and payable by the petitioner, it cannot be held

to be due and payable. Therefore, the High Court committed manifest error of law in refusing to grant injunction as the petitioner has made out a

prima facie case. We find no force in the contention. All the clauses of the contract of the bank guarantee are to be read together. Bank guarantee

letter of credit is an independent contract between the bank and the beneficiary. It does not depend on the result of the dispute between the person

on whose behalf the bank guarantee was given by the bank and the beneficiary. Though the question was not elaborately discussed, it was in sum

answered by this Court in Hindustan Steel Workers Construction Ltd. Vs. G.S. Atwal and Co. (Engineers) Pvt. Ltd., . This Court had held in para

6 that the entire dispute was pending before the arbitrator. Whether, and if so, what is the amount due to the appellant was to be adjudicated in the

arbitration proceedings. The order of the learned Single Judge proceeds on the basis that the amounts claimed were not and cannot be said to be

due and the bank has violated the understanding between the respondent and the bank in giving unconditional guarantee to the appellant. The

learned Judge held that the bank had issued a guarantee in a standard form, covering a wider spectrum than agreed to between the respondent and

the bank and it cannot be a reason to hold that the appellant is in any way fettered in invoking the conditional bank guarantee. Similarly, the

reasoning of the learned Single Judge that before invoking the performance guarantee the appellant should assess the quantum of loss and damages

and mention the ascertained figure, cannot be put forward to restrain the appellant from invoking the unconditional guarantee. This reasoning would

clearly indicate that the final adjudication is not a pre-condition to invoke the bank guarantee and that is not a ground to issue injunction restraining

the beneficiary to enforce the bank guarantee. In Hindustan Steel Works Construction Ltd. Vs. Tarapore and Co. and another, , it was contended

that a contractor had a counter-claim against the appellant; that disputes had been referred to the arbitrator and no amount was said to be due and

payable by the contractor to the appellant till the arbitrator declared the award. It was contended therein that those were exceptional

circumstances justifying by restraining the appellant from enforcing the bank guarantee. The High Court had issued interim injunction from enforcing

that bank guarantee. Interfering with and reversing the order of the High Court, this Court has held in para 23 that a bank must honour its

commitment free from interference by the Courts. The special circumstances or special equity pleaded in the case that there was a serious dispute

on the question as to who has committed the breach of the contract and that whether the amount is due and payable by the contractor to the

appellant till the arbitrator declares the award, was not sufficient to make the case an exceptional one justifying interference by restraining the

appellant from enforcing the bank guarantee. The order of injunction, therefore, was reserved with certain direction with which we are not

concerned in this case.

From the abovesaid decisions it is clear that the irrevocable commitment in the form of guarantee given by the bank must be honoured and the

Courts exercising their power cannot interfere with the enforcement of bank guarantee, but the said restriction on Courts does not apply in cases

where fraud or special equity is prima facie made out so as to prevent irretrievable injustice to the parties.

The Apex Court also dealt with the scope of ""irretrievable injustice"" in the decision in AIR 1997 1644 (SC) and held as follows :

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 Itek Corpn. case, 566 Fed Suppl. 1210. In that case an exporter in USA entered into an agreement with the Imperial

Government of Iran and sought an order terminating its liability on stand by letters of credit issued by an American Bank in favour of an Iranian

Bank, as part of the contract. The relief was sought on account of the situation created after the Iranian revolution when the American Government

cancelled the export licenses in relation to Iran and the Iranian Government had forcibly taken 52 American citizens as hostages. The US

Government had blocked all Iranian assets under the jurisdiction of United States and had cancelled the export contract. The Court upheld the

contention of the 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 harm 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 hot be able to pay, is not enough.

In Itek case (supra), 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.

On the basis of the abovesaid settled principles of law laid down by the Apex Court, we have to now deal with the present case on the basis of the

pleadings and findings given by the learned District Judge.

In the present case, we are concerned about the four bank guarantees marked as Exs, P4 to P7. The reason given by the 1st respondent to

enforce the bank guarantees as submitted by the learned counsel appearing for the 1st respondent is that the appellant herein has failed to perform

his part of the contract before the stipulated time and as per the terms of the contract.

Learned senior counsel appearing for the appellant, referring to the letter dated 18.03.2003 marked as Ex. P18 before the Court below,

submitted that The Godavari Sugar Mills Ltd., under whom the work was carried out certified that the appellant-company have complied with the

erection and pre- commissioning of the plant and so the 1st respondent is not correct in pleading that the appellant-company have failed to perform

their part of the contract before the stipulated time and as per the terms of the contract. The said dispute cannot now be decided for want of

materials. But the fact remains, the said dispute has been referred to the arbitrators which has to be decided by them.

But the Court below factually found that ""if in the meantime the 1st respondent proceeds with the bank guarantee then it will be difficult for the

petitioner to get his money furnished by way of bank guarantee"". No challenge has been made by the 1st respondent before this Court with respect

to the said finding. Having given such a finding, the Court below is not correct in finding that the petitioner/appellant is not entitled for an order of

injunction. The Court below also felt that the interest of the appellant herein has to be safeguarded by maintaining status quo till the disposal of the

proceedings before the arbitrators. Such a finding was given by the Court below in consonance with the scope of Section 9 of the Act. Section 9

of the Act deals with interim measures. Such an interim measure could be given even pending arbitration proceedings with respect to any of the

matters mentioned under the said provision. The issue raised in this case comes u/s 9(ii)(b) of the Act. So it cannot be said that the petition filed u/s

9 of the Act is not maintainable.

Then the only aspect that has to be looked into is as to whether the restriction to grant injunction to enforce the bank guarantees as held by the

Apex Court in the above cited decisions can be imposed in the present case.

In the present case, with reference to the bank guarantees marked as Exs. P4, P5 and P6, under which the bank guarantees were issued to

release the advance payment, it is the case of the appellant-company that the said advance amounts had been adjusted in the bills of the appellant

and they have produced Exs. P13, P14 and P15, dated 27.02.2004 to establish the same. The same also has been prima facie accepted by the

Court below. In view of the said fact in so far as those bank guarantees marked as Exs. P4, P5 and P6, special equity has been prima facie made

out. Even with respect to Ex. P7 bank guarantee, the Court below has given factual finding that if the first respondent is allowed to proceed with

the bank guarantee, then it will be difficult for the petitioner (appellant) to get his money furnished by way of bank guarantees. The said finding of

the Court below gives a base to come to the conclusion that interim order should be given in favour of the appellant to prevent irretrievable

injustice to be caused to them. In the present case, the appellant promptly approached the arbitrators u/s 17 of the Act to safeguard their interest.

But due to one reason or the other, the arbitrators are not disposing of the application, though the Court below has given time-limit for disposing of

the same. The Court below has granted the interim order for a limited period only with the hope that the arbitrators would dispose of the said

application within the period stipulated.

From the above discussion, we are of the opinion that the appellant-company are able to make the case prima facie an exceptional one

justifying interference by granting an order of injunction restraining the 1st respondent from enforcing the bank guarantees as stipulated in the

decisions cited above by the Apex Court. In view of the above, the Court below should have granted injunction restraining the 1st respondent from

invoking the four bank guarantees on the basis of the findings given by the Court below especially when the first respondent''s interest is

safeguarded by keeping the bank guarantees in force. The Court below is not correct in holding that the appellant is not entitled to an order of

injunction, which finding is not based on any reasons, and also contra to the other reasonings given to safeguard the interest of the appellant with

reference to the bank guarantees.

For all the reasons stated above, the order dated 22.03.2004 passed by the Court below is set aside and this appeal is allowed holding that

the appellant is entitled for an order of injunction as prayed for in Ar. O.P. No. 1/2003. No costs. But this order is on condition that the appellant

should keep the bank guarantees in force till the adjudication before the arbitrator is over and the first respondent can enforce the said guarantees

on the basis of the out come of the award to be passed by the arbitrators. C.M.P. No. 7006 and V.C.M.P. No. 11150/2004 are closed.