M/s Metro Tyres Pvt. Ltd 503, Industrial Area Ludhiana vs The State Trading Corporation of India Ltd. and others

J.V. Gupta, J.—This judgment will dispose of C.R. No. 2500 and 2501 of 1981 as the question involved in both the petitions is the same. In the present case, the petitiondi M/s Metro Tyres (P.) Ltd., filed a suit against the State Trading Corporation of India Ltd., and others restraining them from recovering a sum of Rs. 1,33,200/- of the bank guarantee executed in favour of defendants No. 1 and 2 and for restraining defendant No. 3 from making the payment of the aforesaid amount out of the bank guarantee of Rs. 2 lacs. Along with the plaint, en application under Order 39, Rules 1 and 2, Code of Civil Procedure, was also moved for the grant of a temporary injunction till the decision of the suit. The trial Court after hearing the learned counsel for the parties dismissed the application and it was held that no case for injunction was made out so as to restrain defendant No 3 from making payment of the amount of Rs. 1,33,200/- to defendant No. 1. In appeal, the learned Additional District Judge affirmed the order of the trial Court while observing that there was no justification for interfering with the discretion of the trial court refusing to grant the temporary injunction. Dissatisfied with the order of the learned Additional District Judge, the plaintiffs have come up in revision in this Court.

Learned counsel for the petitioner vehemently contended that under the terms of the agreement between the parties, only the earnest money could be forfeited. The amount of Rs. 2 lacs was given by way of security for the damages which the State Trading Corporation may incurr on account of the breach of the terms and unless the damage? are ascertained and the loss suffered by the State Trading Corporation is proved no amount can be recovered from the petitioner. In support of this contention he referred to Union of India (UOI) Vs. Rampur Distillery and Chemical Co., Ltd., ; Punjab National Bank Ltd. Vs. Shri Vikram Cotton Mills and Another, and Tara Singh v. Union of India (1961) 63 P.L.R. 167. Reference was also made to Allied Construction Co. Vs. Union of India (UOI) and Others, in order to contend that even if the bank guarantee was given that does not entitle the State Trading Corporation to realise the amount from the bank without proving the loss suffered by the defendant. On the other hand, learned counsel for the respondents relied on the terms of the bank guarantee executed on behalf of the State Bank of India in their favour. The relevant clause is as under:--

In consideration of you having agreed to register the (item) Natural Rubber requirements of M/s Metro Tyres (P) Ltd, Ludhiana (hereinafter referred to as "Actual User/Allottee"), we State Bank of India, Millerganj, Ludhiana as also our successors and assignees, bind ourselves unconditionally and irrevocably guarantee and undertake that in the event of any default/failure on the part of the Actual User/Allottee to observe all or any of the conditions prescribed/to be prescribed by you in regard to the abovesaid registration and/or allocation order that may be issued by you, we shall on our first demand without protest or demur and without reference to the Actual User/Allottee and notwithstanding any contestation by Actual User/Allottee or existence of any dispute whatsoever between you and the Actual User/Allottee pay forthwith to you or to your successors and assignees any sum up to Rs. 2,00,000/- (Ruppees Two lacs only) that you may demand.

The learned counsel also referred to Texmaco Ltd. Vs. State Bank of India and Others, where the similar terms were interpreted and the temporary injuction was refused. Reliance was also placed on an unreported judgment of the Delhi High Court in (M/s Premier Tyres v. The State Trading Corporation of India Ltd. F.A..O. (O.S.) 78/1980) decided on August 18, 1980.

After hearing the learned counsel for the parties. I do not find any ground to interfere in the discretion exercised by the two courts below. It cannot be disputed that the amount of damages, before it can be recovered, must be ascertained but that stage has not reached yet; that may be the subject-matter of the suit. The only question to be determined in this petition is whether at this stage, the State Trading Corporation is entitled to recover the amount from the bank under the terms of the bank guarantee or not. It has been held in Texmaco Ltd.''s case (supra) that where though the guarantee was given for the performance by the party on whose behalf guarantee was given, in an orderly manner its contractual obligation, the obligation was undertaken by the bank to repay the amount on "first demand" and ''without contestation, demur or protest without reference to such party and without questioning the legal relationship subsisting between the party in whose favour guarantee was given and the party on whose behalf guarantee was given, ''and the guarantee also stipulated that the bank should forthwith pay the amount due ''notwithstanding any dispute between the parties aforesaid", it must be deemed that the moment a demand was made without protest and contestation, the bank had obliged itself to pay irrespective of any dispute as to whether there had been performance in an orderly manner of the contractual obligation by the party. Consequently, in such a case, the party on whose behalf guarantee was given was not entitled to an injunction restraining the bank in performance of its guarantee."

In the similar terms is the guarantee given by the bank to the State Trading Corporation in the present case. Of course, the guarantee has been given by the bank on behalf of the plaintiff but at this stage the defendant it entitled to realise this amount from the bank without any dispute and, therefore, under these circumstances no injunction or order can be passed restraining the bank from making payment of the money under the guarantee to the State Trading Corporation. The Corporation is likely to suffer irreparable loss if the amount claimed by it is not made available to it under the terms of the bank guarantee. Though the Court''s jurisdiction to grant injunction is wide, it would be wrong to interfere normally with the established commercial practice. In this view of the matter, I do not find any merit in this petition as well as in the connected petition and the same are dismissed with costs. However, in order to safeguard the interests of the plaintiff, it is made clear that in case the plaintiff succeeds in the suit and becomes entitled to the refund of the amount or a part of it, realised by the State Trading Corporation, it will be entitled to recover the same alongwith interest at the bank rate to which he would have been entitled if the amount would have remained deposited into the bank.