Gujarat High Court
Vijaysinh Amarsinh And Co. vs Hindustan Zinc Ltd. And Anr. on 3 April, 1992
Equivalent citations: (1992)1GLR639
Author: C.K. Thakker
Bench: C.K. Thakker
JUDGMENT C.K. Thakker, J.
1. This appeal is filed against an order below Exh. 6 in Special Civil Suit No. 104 of 1988 passed by the Second Jt. Civil Judge (Senior Division), Jamnagar on March 12, 1992.
2. The appellant is the original plaintiff, who was given a contract by Hindustan Zinc Limited, first respondent (Ori. Defendant No. 1) for construction of 'Besunda Dam' situated in Udaipur District of Rajasthan State after inviting tenders from general public. The plaintiffs tender was accepted and the contract was entered into between the plaintiff and the defendant No. 1. The contract was for Rs. 2.49 crores. As per the condition of contract, 10% of the tender amount was agreed to be given by way of Bank guarantee and accordingly the plaintiff gave Bank guarantee of Rs. 25 lacs on March 17, 1987 of the defendant No. 2-Bank. It is the case of the plaintiff that the contract was in the two parts and the work was to be completed in two stages. So far as the first stage was concerned, it was a substantial one; while the second stage was only of Rs. 30 lacs. It is his case that he has completed first stage of the contract to the satisfaction of the first respondent. However, so far as the second stage is concerned, even though the plaintiff was ready and willing to do that work, it was not given to him and therefore, he could not do that work. He was constrained to revoke the work of the second stage of the contract by a notice dt. August 8, 1988. The plaintiff also contended that since contract of stage II was not given to him, an agreement for that part of the contract was without any consideration and, therefore, void. The plaintiff, therefore, filed a suit for declaration and for permanent injunction restraining the defendants from encashing and/or invoking the Bank guarantee given to defendant No. 1 by defendant No. 2-Bank. Alongwith the plaint, he filed an application Exh. 6 for interim injunction restraining defendant No. 1 from invoking Bank guarantee during the pendency of the suit. It appears that initially ad-interim relief was granted by the trial Court which was continued from time to time. Finally, however, after hearing the parties by the impugned order dt. March 12, 1992 application Exh. 6 came to be dismissed and the order of status quo which was granted by the Court earlier came to be vacated.
3. It is against this order that the present Appeal From Order is filed by the original plaintiff.
4. Mr. S.B, Vakil, for Mr. P.B. Majmudar, the learned Counsel for the appellant contended that it is clear from the facts stated in the plaint and established from the documentary evidence on record that the contract was in two stages; stages I and II. A Bank guarantee of Rs. 25 lacs came to be furnished by the present appellant because he was to be allowed to undertake and complete the contract of both the stages. Since the contract of stage II has not been given by defendant No. 1 to the plaintiff, the defendant No. 1 has no right to invoke the bank guarantee in its entirety.
5. He submitted that the appellant has completed the contract work of stage I satisfactorily. Therefore, even if it is assumed for the sake of argument without admitting it that the appellant has failed to carry out the work as per contract, the defendant No. 1 can, at the most, invoke bank guarantee to the tune of Rs. 3 lacs only, i.e., of the second stage of the contract.
6. He further submitted that there is fraud on the part of the first respondent in not allowing the plaintiff to complete the contract in its entirety and as per the settled law and the decision of the Supreme Court as well as other Courts, the first defendant should be restrained from invoking bank guarantee.
7. He also submitted that arbitration proceedings are pending. It is the case of the plaintiff that breach of contract has been committed by defendant No. 1 and, therefore, the plaintiff would be entitled to get a substantial amount by way of damages from the defendant No. 1; and during the pendency of those proceedings, it is neither legal nor proper nor equitable that the first defendant who has committed breach of contract should be allowed to take undue advantage of his own wrong by permitting to invoke bank guarantee and by taking away a substantial amount of Rs. 25 lacs.
8. He submitted that no reasons and/or grounds for invoking bank guarantee have been made out by the defendant No. 1 nor he has satisfied the Court as to why the Bank guarantee should be allowed to be invoked. This is, therefore, not a fit case wherein ad-interim relief which was granted earlier was required to be vacated.
9. Finally he submitted that the matter is very old. Ad-interim relief was granted by the trial Court as early as on 9th August, 1988 and is continued till today though more than 3 years are over. He stated that the suit is ripe for hearing. In his submission, therefore, even if this Court is of the opinion that the order passed by the trial Court is in accordance with law and does not require any interference, ad-interim relief which is continued till today may be ordered to be continued by directing the trial Court to hear and finally dispose of the matter.
10. Mr. M.R. Anand, learned Counsel for the respondent No. 1, ori. defendant No. 1, on the other hand, supported the order passed by the trial Court. He submitted that the order is in accordance with law and in consonance with the decision of the Supreme Court in a number of cases. He also submitted that the contract is one and indivisible. Two stages have been mentioned because of the nature of work to be undertaken by contractor. The fact, however, remains that the contract is a complete contract which has been entered into between the parties and for that contract, one bank guarantee of Rs. 25 lacs considering the total amount of Rs. 2.49 crores has been furnished by the plaintiff. It is not that there were two contracts and two bank guarantees came to be furnished treating two projects as separate and independent. He further submitted that there is no murmuring of fraud in the case put forth by the plaintiff. According to him, if at all fraud is said to have been committed it has been committed by the plaintiff and not by the defendant No. 1. He also submitted that equity is in favour of the defendant No. 1 rather than in favour of the plaintiff. Even though by a written contract, power has been confened on defendant No. 1 to allow the plaintiff to work of stage II of the contract and time was granted upto 31st December, 1988, by illegal and unilateral act, the plaintiff by a notice dated 8th August, 1988 refused to do that work. He submitted that the said date is also material in view of the fact that immediately on the next day, i.e., on 9th August, 1988 the plaintiff approached the Court by filing the present suit and obtained ad-interim relief against invoking bank guarantee by defendant No. 1. According to him, no equitable considerations should weigh in favour of such a litigant. He also contended that though the Civil Court has no jurisdiction in respect of disputes required to be referred to an Arbitrator, the plaintiff approached the Civil Court. He submitted that even if it is assumed for the sake of argument that the case did not fall within the arbitration Clause and, therefore, the Civil Court had jurisdiction as per the contract entered into between the parties, only Udaipur Court had jurisdiction and by no stretch of immagination the plaintiff could be said to be justified in filing a suit in Jamnagar Court. He also submitted that when the plaintiff approached Jamnagar Court, he suppressed this material fact and obtained ex-parte ad-interim relief. The plaintiff has also approached Civil Court at Udaipur. In the plaint in the Udaipur Court, he mentioned that in accordance with the terms of the agreement that Court had jurisdiction. On the other hand, in arbitration proceedings, there is total non-cooperation by him. He has not even submitted his claim before the arbitrator. Against the initiation of arbitration proceeding the plaintiff approached the High Court of Rajasthan by filing a writ petition but has failed. Mr. Anand submitted that in the light of above facts and circumstances of the case, if the trial Court has vacated ad-interim relief against invoking bank guaractee by defendant No. 1, the said order can never be said to be illegal, improper or contrary to law requiring interference in the exercise of the appellate power by this Court.
11. Having heard the learned Counsel for the parties, I am of the opinion that the order below Exh. 6 passed by the trial Court is eminently just and proper and does not require any interference by this Court.
12. So far as the contract is concerned, prima facie it appears that the contract is one and indivisible. Two independent and separate contracts have not been entered into by the parties. Two stages have been mentioned in the contract in view of the work which was to be undertaken by the contractor. However, I am not expressing any final opinion regarding the said contention in view of the fact that the suit is still pending. Prima facie, Mr. Anand also appears to be right that before the period of giving of contract of the second stage was over on December 31, 1988, by issuing a notice on August 8, 1988, the appellant-plaintiff unilaterally withdrew and revoked his promise to carry out that work. Whether the said action was legal or valid, whether there was breach of the contract on the part of the plaintiff or on the part of the defendant No. 1 and whether the plaintiff voluntarily revoked from continuing the work or was constrained to do so can be decided only after appreciating the evidence on record. The fact, however, remains that before the period was over, a notice came to be issued by the plaintiff on 8th August, 1988. It also cannot be gainsaid that immediately on the next day the present suit came to be filed and ad-interim relief was obtained by the plaintiff. But from that act also, one cannot jump to the conclusion that the plaintiff was responsible for breach of contract. However, if the said fact has been considered by the trial Court, in my opinion, it cannot be said that the trial Court has committed any error of law.
13. Regarding jurisdiction of the Court, I am not expressing any opinion for two reasons. Firstly, the suit is pending and some observations either here or there may adversely affect either party in the suit; and secondly, I am told at the Bar that an application regarding jurisdiction of the Court is pending before the trial Court and is to be decided as per the order dt. 9th January, 1992 passed by this Court in Special Civil Application No. 138 of 1992 (Coram: B.S. Kapadia, J.). Therefore, I am making it clear that none of the observations made by me in the course of this order should weigh with the trial Court in deciding the issue relating to the jurisdiction of the Court and all observations made in this order are to be construed as limited to the controversy raised before me regarding invoking of Bank guarantee.
14. I am also not impressed by the argument of Mr. Vakil regarding fraud or equity. Prima facie there does not appear to be fraud on the part of the defendant No. 1. So far as equity is concerned, prima facie it appears that defendant No. 1 was within his authority to wait upto 31st December, 1988 so far as giving of work of the second stage is concerned. It may be that because of some act on the part of the defendant No. 1, the plaintiff might have been compelled to issue notice on 8th August, 1988 but that is a question of fact which can be decided after appreciating the material on record. In my opinion, at this stage the plaintiff cannot plead equity in his favour when he has issued notice on 8th August, 1988 before the period was over and when he has obtained ad-interim relief immediately on the next day and therefore, the trial Court cannot be said to have committed any error in vacating ad-interim relief which requires interference.
15. So far as the law relating to bank guarantee is concerned, it is fairly well-settled. In the leading decision of United Commercial Bank v. Bank of India, , the High Court of Bombay granted temporary injunction in an application filed by the plaintiff-Bank under Order 39 Rules 1 and 2 of the Code of Civil Procedure, 1908 restraining the defendant-bank from invoking bank guarantee. The defendant approached the Supreme Court. Describing the interlocutory order passed by the High Court as "wholly unwarranted", A.R Sen, J. quoted with approval, the following observations of Kerr, J. in R.D. Harbottle (Mercantile) Ltd. v. National Westminister Bank Ltd., reported in 1977 (2) WLR 752:
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. Such obligations are regarded as collateral to the underlying rights and obligations between the merchants at either end of the banking chain. Except possibly in clear cases of fraud of which the banks have notice, the Courts will leave the merchants to settle their disputes under the contracts by litigation or arbitration as available to them or stipulated in the contracts. The Courts are not concerned with their difficulties to enforce such claims; these are risks which the merchants take. In this case the plaintiffs took the risk of the unconditional wording of the guarantees. 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.
(Emphasis supplied) The Court, therefore, concluded:
No injunction could be granted under Order 39 Rules 1 and 2 of the Code unless the plaintiff's establish that they had a prima facie case, meaning there by that there was a bona fide contention between the parties or a serious question to be tried. The question that must necessarily arise is whether in the facts and circumstances of the case, there is a prima facie case and, if so, as between whom? In view of the legal principles applicable, it is difficult for us to say on the material on record that the plaintiffs have a prima facie case. It cannot be disputed that if the suit were to be brought by the Bank of India, the High Court would not have granted injunction as it was bound by the terms of the contract. What could not be done directly cannot be achieved indirectly in a suit brought by the plaintiffs.
(Emphasis supplied)
16. In Centax (India) Ltd. v. Vinmar Impex Inc. and Ors., the Supreme Court not only reiterated the principle laid down in the case of United Commercial Bank (supra) but extended from a transaction between a banker and banker to a banker and customer.
17. Again, in U.P. Co-operative Federation Ltd. v. Singh Consultants & Engineers (P.) Ltd., a Division Bench of the Supreme Court had to interfere with an order of injunction passed by the High Court of Allahabad. Relying on foreign and Indian decisions, Mukharji, J. (as his Lordship then was) stated:
(T)he not effect of the injunction is to restrain the bank from performing the bank guarantee. That cannot be done. One cannot do indirectly what one is not free to do directly. But a maltreated man in such circumstances is not remedyless. The respondent was not to suffer any injustice which was irretrievable. The respondent can sue the appellant for damages. In this case, there cannot be any basis for apprehension that irretrievable damages would be caused if any. I am of the opinion that this is not a case in which injunction should be granted. An irrevocable commitment either in the form of confirmed bank guarantee or irrevocable letter of credit cannot be interfered with except in case of fraud or in case of question of apprehension of irretrievable injustice has been made out. This is the well settled principle of the law in England. This is also a well settled principle of law in India.
(Emphasis supplied)
18. In concurring judgment, Shetty, 3. also stated:
The letter of credit has been developed over hundred of years of international trade. It was most commonly used in conjunction with the sale of goods between geographically distant parties. It was intended to facilitate the transfer of goods between distant and unfamiliar buyer and seller. It was found difficult for the seller to rely upon the credit of an unknown customer. It was also found difficult for a buyer to pay for goods prior to their delivery. The bank's letter of credit came into existence to bridge this gap. In such transactions, the seller (beneficiary) receives payment from issuing Bank when he presents a demand as per terms of the documents. The bank must pay if the documents are in order and the terms of credit are satisfied. The bank, however, was not allowed to determine whether the seller had actually shipped the goods or whether the goods conformed to the requirements of the contract. Any dispute between the buyer and the seller must be settled between themselves. The Courts, however, carved out an exception to this rule of absolute independence. The Courts held that if there has been "fraud in the transaction" the bank could dishonour beneficiary's demand for payment. The Courts have generally permitted dishonour only on the fraud of the beneficiary, not the fraud of somebody else.
(Emphasis supplied)
19. The above principle have been reiterated by the Supreme Court in a recent decision in the case of Gujarat Electric Technical Services Company Inc. v. Mrs. Punj Sons (P) Ltd., .
20. Mr. Vakil placed considerable reliance on the decision of the High Court of Allahabad in the case of Union of India v. Meena Steels Ltd., . Apart from the fact that the said decision is not binding to this Court, the Supreme Court was unable to sustain the view taken by the High Court of Allahabad since it was not inconfirmity with the well settled principles on which bank guarantees were operated. (U.P. Corporation Federation Ltd.) (supra).
21. Thus, in my opinion, as per well settled principle of law Courts should not normally grant injunction restiaining the performance of the contractual obligations arising out of a letter of credit or a bank guarantee. For applications of this doctrine, it is immaterial whether such contract is between 'a banker and a banker' on the one hand or a banker and a customer' on the other hand. Commercial transactions are commercial transactions. Commitments of banks must be honoured free from interference by Courts. Banks are the "life blood" of international commerce. Indiscri irate interference by Courts in such matters would cause irreparable damage to commercial world as a whole. Courts are indeed ill-suited for getting contractual obligations between a buyer and a seller fulfilled in such cases.
22. Applying the above principles to the facts of the case, it cannot be said that the learned Judge has committed any error of law in refusing injunction as prayed by the plaintiff. In a well considered order, after appreciating all the material facts, he recorded a finding that the plaintiff had not come with clean hands and that neither in law nor in equity it was a fit case to grant interim relief restraining defendant No. 1 from invoking or encashing bank guarantee. In my opinion, no ground and/or reason has been made out by the appellant against the said order passed by the learned Judge and the appeal is dismissed.
At this stage, the learned Counsel for the appellant prays that ad-interim relief which is in operation from 9th August, 1988 may be continued for some time so as to enable him to approach the higher forum. Mr. Anand strongly objects the prayer made by the learned Counsel for the appellant. However, in the facts and circumstances of the case, it would be proper to continue status quo. Ad-interim relief is ordered to be continued till 27th April, 1992.