Prem Heavy Engineering work''s pvt.Ltd.(Phew), Meerut vs Dwarikesh Sugar Industries Ltd.Bombay and another

The matter was heard in presence of the revisionist and the caveator opposite party. This is an application under section 115 CPC challenging an order dated 20.8.96 recorded by the IInd Civil Judge (Senior Division) at Meerut. In a Suit under Section 20 of the Arbitration Act for appointment of an arbitrator for determining the dispute between the parties, an application was filed for an injunction to restrain the present caveator from invoking two banks guarantees issued by the State Bank of India infavour of the caveator during the pendency of the suit. This application was rejected by the Court concerned by the impugned order, after hearing both the parties.

It was submitted by the learned counsel that the court below had faile to exercise the jurisdiction bestowed on him and in fact he did not apply his mind at all and he simply noted the arguments of the parties and recorded the order without any discussion of the facts and circumstances alleged. It was contended that the learned court below failed to take note of the allegation of fraud made in the injunction application and he had simply observed that there was no averments of fraud in the plaint. The learned counsels engaged themself in argument on these points only.

There had been an agreement between the parties for supply of certain machinery by the Plaintiff to the caveator defendant no. 1 under the agreement the plaintiff had furnished bank guarantee to secure the advance payment made to them and also to secure the guarantee of performance of the contract. It was agreed that in case of invocation of any bank guarantee by the defendant no. 1 the same would be signed by their Managing Director. As regards arbitration, the parties agreed that if at any time there should be a question, dispute or difference between the parties in respect of any matter arising out of or in relation to the agreement then any of the parties would give a notice in writing to the other and make a reference to arbitration.

By their letter dated 21.10.95 defendant no. 1 had intimated the plaintiff that they would enforce all the penalty provisions in the agreement if the materials as per the contract did not reach the site by 6.11.95. It was contended in the plaint that the cause of action arose because of this letters as there was a dispute as to completion of work. It was further stated in course of argument here that by a letter dated 16.11.95 the defendant no. 1 had extended the time of performance up to 28.11.96 and in fact the contract was performed within that time. It was further contended that in the injunction petition itself fraud was definitely alleged and that was sufficient to record an order of injunction.

The respondent contended that the liability under the bank guarantee was absolute and no injunction could be issued against their invocation. He read out the terms of the bank guarantee in this connection.

In reply, it was contended by the revisionist that even according to the respondent the agreement was completed on 5.12.95 and there was a delay for seven days only and allowing invocation of the bank guarantee will entail an undue enrichment of the respondent. It was contended in reply that there was no calculation of loss and there was no discussion on the merits of the claim of injunction and in fact and there was no application of mind. It was contended that in terms of the clauses in the bank guarantee maximum liability amounts were fixed which were subject to proportionate adjustment in accordance with the terms of the agreement. Clause 15 of the agreement was relied upon to say that the liability of the bank guarantee shall get diminish progressively in the same proportion in which the amount covered under the said guarantee is adjusted by the seller in each of his invoices and shall get finally extinguished on sellers adjusting the full amount of advanced guarantee provided by. The learned counsel also drew my attention to the several documents of the plaintiff firm allegedly showing such adjustments.

In my view, reference to judicial decisions will not be of much importance for the present revision application as it is not a question if the bank guarantee should have been invoked. Rather the question is whether the learned court below had failed to look to the averments and to apply his mind in the matter. It is found that allegation of the fraud were there in the injunction petition although not in the plaint. The learned court below did not look to this aspect to decide if the allegation of fraud in the injunction petition were sufficient to make out a case for injunction, rather he made a remark that there was no allegation of fraud at all. The learned court below had failed to take note of the clauses of the agreement allowing the right of adjustment to the present revisionist (plaintiff before him) as also to the documents allegedly indicating such adjustment. It is true that the liability of the bank under the guarantee is absolute and the bank is not supposed to question the authority of the defendant to encash the guarantee but that could not be the guideline for allowing the defendant to encash the bank guarantee unless there was a finding that the defendant was having no undue enrichment thereby. The learned court below was also to see that if the bank guarantees in question were for performance alone or for supply of materials also and if any supply was made and if the whole of the amount under the guarantee was open to invocation. He was required to give his finding on these points before making any order on the injunction application

I am told that the materials now placed along with the stay application were filed before the court below. There would be no necessity of taking any further documentary evidence on record. The revision application stands allowed. The order impugned stands set aside and the matter is remanded back to the court below for a proper decision in terms of the above observations after hearing argument of both the parties. He is to hear the parties within 15 days from the receipt of a copy of the present order and is to record his order on the injunction application within 15 days from the date of hearing without being influenced by any opinion on merits expressed by this court in this order. Till he records an order on the injunction application the bank guarantees in question shall hot be invoked or encashed by defendant no. 1.

(Revision allowed)