Karnataka High Court
South India Wire Ropes Ltd. A Company ... vs Usha Martin Industries Limited A ... on 29 September, 2006
Equivalent citations: AIR2007KANT59, AIR 2007 KARNATAKA 59, 2007 (3) ALJ (NOC) 421 (KAR.) = AIR 2007 KARNATAKA 59, 2007 A I H C 709, 2007 (2) ABR (NOC) 296 (KAR.) = 2007 (1) AIR KAR R 267, 2007 (1) AIR KAR R 267
Author: D.V. Shylendra Kumar
Bench: D.V. Shylendra Kumar
JUDGMENT D.V. Shylendra Kumar, J.
Page 0275
1. This Regular First Appeal by the first defendant is against Judgment and decree dated 16-2-2001, passed in OS No. 2066 of 1984, on the file of the V Additional City Civil Judge, Bangalore, decreeing the suit for permanent injunction.
2. The first defendant being purchaser of certain machinery from the plaintiff and the second defendant being the bank which had issued a guarantee in favour of the first defendant purchaser for a sum of Rs 1.75 lakh showing payment of the amount to the first defendant on demand.
3. The suit of the plaintiff having been decreed by the trial court the present appeal by the aggrieved first defendant purchaser of the machinery from the plaintiff.
4. The case of the plaintiff in brief before the trial court was that the plaintiff and the first defendant had entered into an agreement for supply and commissioning of certain specialized machinery known as wire drawing machine to be commissioned at the premises of the first defendant; that the price to be paid by the purchaser on the commissioning of the plant and machinery was agreed to be for a sum of Rs. 17,50,000/-; that the terms and conditions had been finalized after mutual negotiations; that one of the conditions was that the commissioning was to be completed within a stipulated period, particularly to be completed within 30 days of the setting of the machinery in terms of Clause-5 of the terms and conditions mutually agreed upon at a meeting of the parties held on 24-10-1983 at the place of the first defendant in terms of the records at document Ex-P6 dated 24-10-1983; that for ensuring prompt commissioning of the machinery the parties had agreed for fixing for an outer time limit and in the event the supplier plaintiff does not commission the machinery by this time, the Page 0276 purchaser defendant was entitled to deduct 10% of the sale price of the machinery.
5. The parties had also agreed that in lieu of such deduction, the defendant would not so deduct this amount from the full price and as full price was to be paid only on commissioning, as an alternative, it was agreed between the parties that instead of retaining this 10% amount by the first defendant till commissioning of the machinery, the plaintiff would provide a bank guarantee in favour of the first defendant for this amount of Rs. 1.75 lakh, which the defendant could enforce if the commissioning was not completed as agreed to and if even after mutual negotiations for setting right the same, it was not complied with, thereafter on such event happening, the bank would honour the bank guarantee for the payment of Rs. 175 lakh in favour of the first defendant.
6. It is the case of the plaintiff that the first defendant invoked the bank guarantee even before the expiry of the period which had been agreed between the parties for the commissioning of the plant and machinery, even without exhausting the alternative remedy or going through the procedure of apprising the plaintiff and failure on the part of the plaintiff to respond and not having setting out the defect on the happening of which the defendants could invoke the bank guarantee and even without any justification or cause of action, the first defendant invoked the bank guarantee without even providing any opportunity to the plaintiff to respond to the query of the first defendant.
7. It is the case of the plaintiff that the first defendant issued a telegram on 19th January 1984 proposing to invoke the bank guarantee which was valid till 31-1-1984 unless it was not extended further and even without waiting for the response, invoked the bank guarantee on the very next day i.e. on 20-1-1984 by calling upon the banker to honour the bank guarantee. It is also the case of the plaintiff that the machinery in fact has been commissioned by 24/25-1-1984 itself; that there was neither any justification for invoking the bank guarantee earlier nor is there any cause or justification. Thereafter, as per terms of the bank guarantee for Rs. 1.75 lakh to which the plaintiff having worked to the satisfaction of the first defendant, there was no occasion for the first defendant to invoke the bank guarantee, but still the first defendant having called upon the banker to honour it and pursued to encash the bank guarantee, it became necessary for the plaintiff to file the suit seeking for a restraint order not only on the first defendant from enforcing the bank guarantee to the detriment of the plaintiff but also to restrain the second defendant bank from honouring the bank guarantee.
8. Defendants entered appearance on issue of notice. First defendant contested the suit and has filed written statement Second defendant-bank though represented did not resist the suit by filing any written statement nor joined in any further proceedings before the trial court.
9. The first defendant averred that the suit is frivolous, fictitious and not tenable in law and was liable to be dismissed outright; that the facts leading to the entering into of contract for supply of machineries by the plaintiff to the first defendant was not disputed; that the first defendant had information that the plaintiff was not keeping up with the time schedule in Page 0277 commissioning such machineries which had been supplied to some other purchasers and therefore not only negotiated for commissioning the machineries within the timeframe but also insisted on the condition that in the event the machinery was not commissioned as per the time schedule, the defendant was entitled to deduct 10% of the value of the machinery; that in lieu of the same, the plaintiff had furnished a bank guarantee through its banker - second Defendant; that the defendant had justifiably invoked the bank guarantee; that the allegation in the plaint about non-performance of the terms and conditions on the part of the first defendant are not fulfilled is incorrect; that the requisite conditions were not fulfilled is not true and not admitted; that the bank guarantee which had been executed for a sum of Rs. 1,75,000/- was in the first instance valid upto 30-11-1982 and that it had been extended from time to time as the plaintiff was unable to commission the machinery within the stipulated time; that the validity of the guarantee had been extended from time to time, the last such extension being upto 31-1-1984; that it was not true that it was due to the default of the defendant, it became necessary to keep alive the bank guarantee upto this time, but it was only due to the default on the part of the plaintiff; that the plaintiffs claim that it had fulfilled all its terms and conditions of the contract and had duly delivered the machinery and also commissioned the same at the factory premises of the defendant was false; that the plaintiff never commissioned the machinery in its entirety either before the date on which the bank guarantee was invoked or even by the date of the expiry of the validity period of the guarantee; that even on the date of filing of the written statement which was on 29-10-1984, the plaintiff had not completely commissioned the machinery; that an essential part of the machinery like the spooler was not functioning in a proper manner; that the electrical circuits and designs were all faulty; that the machine suffered from inherent manufacturing defect due to the non-commissioning of the spooler part of the machinery; that the defendant sustained enormous losses amounting to several lakhs of rupees; that the defendant reserved its right to initiate separate proceedings against the plaintiff for such losses; that the averment in the plaint that the machinery had been successfully installed for trial on 19-1-1984 was false claim; that the defendant had time and again complained about the improper functioning of the machinery which continued to be so even on the date of the filing of the written statement; that the defendant was fully justified in invoking the bank guarantee as even according to the plaintiff and its officials, there was no way of the machinery being commissioned completely by 31-1-1984 which was the validity period of the bank guarantee and the plaintiff having not responded to the telegram of the defendant indicating that unless the validity of the bank guarantee was extended they will invoke the same, the defendant was fully justified; that there was sufficient cause of action for invoking the bank guarantee; that the defendant had for valid and bonafide reasons invoked the bank guarantee; that, in fact, there was no cause of action for the plaintiff to file the suit; that the suit was also not maintainable for want of territorial jurisdiction as no part of the cause of action arose within the jurisdiction of the court wherein the suit had been filed; that the suit was liable to be dismissed by rejecting the plaint for want of cause of action as Page 0278 well as the court not having jurisdiction; that the plaint was not properly valued and court fee paid was insufficient; that the court fee having not been paid on the value of the suit, namely, Rs. 1,75,000/-, the plaint was liable to be dismissed on such ground and that the plaintiff was not entitled to the relief of bare injunction; that it was not open to them to seek for such a relief in law like the suit for bare injunction for non-enforcement of the bank guarantee being not tenable; that the suit was not maintainable in law and therefore prayed for dismissal of the suit.
10. In the light of such rival pleadings, the trial court framed the following issues:
[1] Does plaintiff prove that the bank guarantee No. 23/1983 dated 13.6.1983 is not liable to be invoked or enforced as contended?
[2] Is plaintiff entitled for injunction sought for?
[3] What order or decree?
11. Parties went to trial on such issues. On behalf of the plaintiff, apart from the oral testimony of one R.M. Seth, Deputy Manager of the plaintiff-company who was examined as PW-1, as many as 17 documents were marked as Exhibits-P1 to P17. On behalf of the first defendant, one K.R.C. Pillai, Manager-Finance of the company was examined as a witness as DW-1 and documents Exhibits-D1 to D16 were marked.
12. The trial court on perusal of the pleadings and the evidence placed before the court by the parties, being of the view that while the material placed by the plaintiff, particularly, the deposition of PW-1 was cogent, trustworthy and convincing, accepted such evidence of PW-1 and answered both the issue Nos. 1 and 2 in the affirmative and consequently decreed the suit as prayed for.
13. In doing so, the learned trial Judge held that the first defendant had failed to establish the defence that the plaintiff had played a fraud on the defendant; that the defendant was not entitled to invoke the bank guarantee without complying with the conditions mentioned in the bank guarantee itself which was the precise version of the plaintiff and the defendant having not made good its version that it was justified in invoking the bank guarantee nor having convinced the court that the conditions for invoking the bank guarantee had been fulfilled, in the sense that, the ground had been prepared by the defendant for invoking the bank guarantee by exhausting the alternatives as indicated in the bank guarantee itself nor having followed the procedure property before invoking the bank guarantee, the defendant was not justified and therefore the plaintiff was entitled to the relief of injunction.
14. The documents marked on behalf of the parties essentially comprised of the correspondence leading to the contract. The bank guarantee itself was marked as Exhibit-P9 and particularly the trial court having bestowed its attention to the particular clause which was a condition precedent for invoking the bank guarantee. The relevant clause in the bank guarantee Exhibit-P9 which was examined by the trial court is as under:
3. Now, therefore the guarantor hereby provides this guarantee under which he agrees to pay a sum not exceeding Rs. 1,75,000/- [Rupees One Lakh Seventy-five Thousand Only] being the 10% value of the contract to the purchaser for non-fulfillment of the conditions of the Page 0279 order after mutual discussions between the purchaser and seller fail to resolve the problem.
15. The learned Judge of the trial court totally rejected the evidence of DW-1 characterising that as not consistent and convincing and that it was contradictory in nature as the witness had while once admitted that the machinery was running or performing, in another breath it is stated that it had not been commissioned at all. The learned trial Judge has taken such version on the part of the DW-1 as admission of the commissioning of the machinery, in which event, the plaintiff was justified in seeking relief before the court as there was no occasion for the defendant to have invoked the bank guarantee and on the other hand the defendant should have returned the bank guarantee as demanded by the plaintiff.
16. I have heard Ms. Aparanji, learned Counsel for the appellant, who has made very vehement and elaborate submissions pointing out that the trial court has wrongly decreed the suit; that the suit should have been dismissed on the material on record and having regard to the legal position with exemplary costs and therefore the appeal should be allowed and the suit be dismissed.
17. It is contended on behalf of the appellant in this appeal that the learned trial Judge has totally gone wrong in thinking that the suit of the plaintiff was valid, tenable and that the plaintiff could not have sued for relief of bare injunction to restrain not only the banker from honouring the bank guarantee, but also to restrain the first defendant from enforcing the bank guarantee.
18. Ms. Aparanji learned Counsel for the appellant has urged that the evidence on record had clearly indicated that while the plaintiff had never completely commissioned the machinery, evidence of DW-1 which was during the year 1999, even as on that day, the machinery had not been commissioned in terms of the purchase order; that in this regard, considerable correspondence had taken place between the parties even subsequently also; that in the light of such evidence, the trial court should have dismissed the suit.
19. It is also contended that the suit for a restraint order against the defendants without a declaration with regard to the performance or otherwise on the part of the plaintiff was not tenable; that the suit of this nature does not lie in view of the provisions of Section 38 read with Section 41 of the Specific Relief Act, 1963 [for short, the Act).
20. Sri Sriranga, learned Counsel for the first respondent-plaintiff, who has contested this appeal, and who has entered caveat in this appeal, has also urged with equal vehement that the judgment and decree of the trial court is sustainable; that the first respondent who was the plaintiff in the suit was entitled to seek the relief of injunction in view of the condition subject to which the bank guarantee could have been invoked having not been fulfilled and in the absence of the defendant having establishing any fraud on the part of the plaintiff, the suit has been rightly decreed, appeal lacks merit and it should be dismissed.
21. Before adverting to the rival submissions on behalf of the parties, let me refer to a few facts leading to the suit and the appeal, with most of the facts being not in dispute and the limited dispute on facts being only on the aspect Page 0280 of the condition for invoking the bank guarantee having been fulfilled or not or as to whether the defendant was entitled to invoke the bank guarantee in the circumstances.
22. The dispute on the legal side is as to the maintainability of the suit for the relief of perpetual injunction even without a declaration about the non-fulfilment of the conditions enabling the beneficiary to invoke the bank guarantee, in view of the provisions of Section 38 and 41 of the Act.
23. The other legal question that would arise is as to whether the plaintiff, who was in the position of third party to the contract of bank guarantee between the bank [second defendant] and the beneficiary (firs defendant], could have maintained the suit of this nature, which would virtually absolve the bank - the second defendant in the suit - of its obligations in favour of the first defendant beneficiary of the bank guarantee a contract between them even without any allegation of fraud or misrepresentation having been played by the beneficiary on either the plaintiff or on the bank to secure the bank guarantee and even without seeking a declaration that the bank guarantee itself void due to such fraud and deceit and can be avoided.
24. Though the learned Judge has not posed such legal questions for determination, I find that on the very pleadings of the parties and having regard to the legal position, unless these questions were answered in favour of the plaintiff, there is no way for the plaintiff to seek for a consequential relief of perpetual injunction. I say so for the reason that without the determination of inter se rights of the bank, which had executed the bank guarantee and the beneficiary - the first defendant-appellant - there is no way of the court granting the relief of perpetual injunction to restrain the bank from performing its part of the obligations under the contract, which would in effect, amounts to declaring the bank guarantee as a void and unenforceable contract even without the declaration to that effect So long as the execution of the bank guarantee by the second defendant bank in favour of the first defendant is admitted, there is no way of the court for granting the relief of injunction in favour or against one of the parties, unless the validity of the very bank guarantee is found to be untenable or any of the term of the contract to be not enforceable in law and a declaration sought for and granted about such invalidity and therefore the non-enforcement.
25. A few undisputed facts lading to the suit and the appeal are that: The plaintiff-company had entered into an agreement with the first defendant for supply and installation of machinery known as wire drawing machine and in this regard the purchase order through the plaintiffs letter dated 11-3-1982 [ExP2] with slight modification about the terms of the supply in terms of its letter dated 7-4-1982 [ExP3]. The first defendant had accepted its willingness for the modified terms in terms of its letter of acceptance dated 22-4-1982 (ExP4]. The initial quotation and the terms of the sale of the machinery was to be found in the plaintiff's letter dated 24-2-1992 [ExP1]. What is significance is that while letter dated 24-2-1982 indicated the details and specifications of the machinery, subject matter of sale by the plaintiff to the first defendant, the particulars of the wire drawing machine with spooler were sought to be as indicated in Page 0281 the first defendant's letter dated 11-3-1982 [ExP2] and the acceptance letter and further terms were indicated by the plaintiff in terms of ExP3 communication dated 7-4-1982. There were further negations between the parties in terms of the first defendant's letter dated 22-4-1982 [ExP4] and the terms for the purchase of machinery were finalized in the meeting of the representatives of the plaintiffs and the defendants held on 24-10-1983 at 4.30 pm at the place of the first defendant and were reduced to writing as mutually agreed terms signed by the representatives of both the parties, which has been marked as ExP6. What is of significance at this meeting is that while the price of the machinery was at Rs. 17.5 lakh, the payment 10% less this amount was to be made before the erection of the machinery and the balance 10% of the price was to be made only after erection and commissioning of the machine and if that was so done within the stipulated time. The plaintiff had agreed that the price included the erection and commissioning charges also in terms of Clause-5 in ExP6 and that it will be completed in thirty days at no extra cost. It was a term of the contract that the purchaser will get the concession of 10% of the sale value of the machinery unless the plaintiff-supplier maintains the installation schedule and the first defendant was entitled to deduct this sum from the sale price and keep it for ensuring the prompt erection and installation of the machinery. It is in this context, the plaintiff had requested the first defendant assuring of prompt commissioning of the machinery and instead of the purchaser deducting and keeping 10% of the price with it and to be paid only on and after the commissioning of the machinery, the entire amount may be realized even before the commissioning, subject to the plaintiff executing the bank guarantee for this amount and in such circumstance, the plaintiff had got issued the bank guarantee dated 13-6-1983 through its banker [second defendant) M/s Allahabad Bank for a sum of Rs. 1.75 lakh, which was initially valid up to 31-7-1983 and had been subsequently extended upto 31-9-1983 as per ExP10 dated 12-8-1983 and further extended upto 31-1-1984 in terms of the bank's communication dated 19-10-1983 [ExP11].
26. It is for the invocation of this bank guarantee the first defendant had caused issue of a telegram dated 19-1-1984 seeking for its further extension as it is likely to expire by 31-1-1984 and the machinery having not been commissioned on the date of issue of telegram, which was received by the plaintiff on 20-1-1984. It was also indicated in this telegram that unless the bank guarantee was further extended for a period of 90 days and the confirmation in this regard reached the first defendant by or before 25-1-1984, the first defendant will be constrained to encash the bank guarantee without any further reference.
27. First defendant through the telegraphic communication dated 20-1-1984 to the bank invoked the bank guarantee, which according to the bank was in the following language:
WE INVOKE YOUR GUARANTEE NO GTEE/UMB/23/83 DATED 13-6-83 FOR RUPEES ONE LAKH SEVENTYFIVE THOUSAND STOP DUE TO NON-FULFILMENT OF THERMS AND NON-COMMISSIONING OF THE MACHINERY SUPPLIED BY USHA MARTIN BLACK LTD., BANGALORE STOP KINDLY ARRANGE TO EFFECT REMITTANCE BY A DEMAD DRAFT.
Page 0282 Such an intimation was communicated by the bank to the plaintiff as well as the first defendant as per the bank's letter dated 21-1-1984 [ExP13], where under the bank sought to get the details of the nature of non-fulfilment of the conditions and the value of such non-fulfilment, details of the discussion between the plaintiff and the first defendant in this regard and further confirmation by the first defendant that such discussion could not have resolved the problem between the parties and therefore the first defendant was compelled to invoke the bank guarantee etc. The bank also sought to know the amount that it was required to pay in full satisfaction of the bank guarantee.
28. It appears there was further correspondence between the plaintiff and the first defendant in terms of letter dated 20-6-1984 [ExP14] where under the first defendant had apprised the plaintiff that due to the failure on the part of the plaintiff for proper installation of the machinery, the first defendant was constrained to invoke the bank guarantee; that it was not proper for the plaintiff to have sought for return of the bank guarantee pleading that the machinery had been properly commissioned; that it was never commissioned in a proper manner and in view of such position, the first defendant proposed to take further legal action for the recovery of loss etc. It is subsequent to this communication, the plaintiff approached the court by filing the suit for injunction on 28-6-1984.
29. It is also obvious that the bank never honoured the guarantee, though it had been invoked on 20-1-1984 and within this validity period which was up to 31-1-1984.
30. The dispute in the context of invoking the bank guarantee is that while the first defendant pleaded that the machinery with spool part of it had never been commissioned for functioning in terms of the contract before the agreed date and therefore the defendant became entitled for the 10% rebate on the cost of price of the machinery in lieu of which the plaintiff had furnished the bank guarantee and the first defendant has rightly and justifiably invoked the bank guarantee for the encashment of the bank guarantee having become entitled to 10% rebate on the sale price, the version of the plaintiff was that the plaintiff had completed the installation of the machinery within the agreed time; that if at all the machinery had developed any problem or defects thereafter, it did not amount to non-commissioning of the machinery within the stipulated time; that the purchaser did not become entitle for the 10% rebate and therefore could not have invoked the bank guarantee. It was in such circumstance, the suit for injunction had been laid with the following prayer:
WHEREFORE, the plaintiff prays for judgment and decree against the defendants -
(a) for a permanent injunction restraining the first defendant from enforcing the bank guarantee No. 23/83 dated 13-6-1983 for Rs. 1,75,000/- issued by the second defendant;
(b) for a permanent injunction restraining the second defendant from making any payment to the first defendant or to any other person in pursuance of the bank guarantee No. 23/83 dated 13-6-1983; and Page 0283
(c) for any other or further reliefs as this Hon'ble Court deems fit to grant in the circumstances of the case.
31. The plaintiff indicated the cause of action to have arisen on 24-2-1982 and other subsequent dates upto 20-6-1984 and valued the subject matter of the suit for the purpose of court fee and jurisdiction at Rs. 1,000/- against each of the defendant, making the total value of the suit at Rs. 2,000/- and paid court fee on this amount.
32. As noticed earlier, the first defendant filed its statement of objections and contested the suit, both on factual and legal aspects, prayed for dismissal of the suit, pleading that there is no cause of action for filing the suit; that the suit has not been property valued; that the suit is not maintainable in law and sought for dismissal of the suit.
33. Learned Counsel for the appellant has taken me through the pleadings and the evidence in the suit to demonstrate that in fact the machinery had not been totally and in terms of the contract installed by 31-1-1984, particularly the spooler parts have never functioned and in view of the defects in electrical drawings and designs, the machinery was not properly functioning, even on the date of installation/erection and therefore the first defendant was justified in invoking the bank guarantee, the suit was frivolous and vexatious and to be dismissed. It was also submitted that the suit as laid was not tenable in law being one for a mere bare injunction regarding the bank guarantee and on this ground itself, the trial court should have dismissed the suit. It is also pleaded that a suit for injunction to restrain the enforcement of a bank guarantee in the absence of a plea that the bank guarantee is voided in the context of a fraud played by the beneficiary, even while parties had entered into the main contract, cannot be maintained in view of the law laid down in this regard and has relied upon several authorities.
34. Submission of learned Counsel for the appellant by drawing attention to the relevant pleadings and oral and documentary evidence, is that the learned trial judge has wrongly answered issue No. 1 viz., whether the plaintiff proves that that the bank guarantee No. 23/1983 dated 13-6-1983 is not liable to be invoked or enforced. Learned Counsel submits that this is a perverse finding and not reflective of the material on record and in fact even contradicting the very finding that the learned judge has recorded at para-24 of the judgment, which is indicated that: "... there was inordinate delay on the part of the plaintiff' in supplying the machine as per the purchase order placed by the defendant for Rs. 17.5 lakhs. Learned Counsel submits that the only reason based on which the learned judge has answered issue No. 1 was by simply accepting whatever was stated on oath by the plaintiffs witness PW1 R.M. Seth by saying that his testimony appears to be consistent and convincing, whereas the learned trial judge has totally discarded the testimony of the Manager (Finance) of the first defendant-company and on the other hand attributes the admission to him, which was not there and as such the reasoning for answering issue No. 1 is perverse and is liable to be set aside. It is also submitted that the learned trial judge, just characterizing the evidence of DW1 as not consistent and convincing and discarding the same, virtually amounts to subjective assessment of the evidence on record Page 0284 rather than being based on any objective criterion particularly with reference to the pleadings and other documentary evidence on record.
35. It is not in dispute that the erection of the machinery and installation of the same included the work of the spooler parts of the machinery also. The fact that spooler parts of the machinery form part of the machinery is an undisputed fact and if it is not made functioning, installation is not complete is the submission of the learned Counsel for the appellant.
36. The stand on the part of the plaintiff, on the other hand even as noticed by the learned trial judge was that if any part of the spooler was not functional, it was open to the first defendant to take such action independently and as such could not have invoked the bank guarantee, which was only for the limited purpose of erection and commissioning of the machinery and not beyond is a perverse finding, is the submission of the learned Counsel for the appellant, as the learned trial judge could not have recorded such a finding; that if the machine is not functioning properly, it was for the first defendant to take appropriate action against the plaintiff, if it was so advised. Learned Counsel submits that precisely that was the question and it is for this reason, the first defendant has justifiably invoked the bank guarantee.
37. Even subsequent correspondence in terms of ExP14 letter dated 20-6-1984 from the first defendant to the plaintiff indicates that it had been the consistent stand of the first defendant that the machinery had not been commissioned fully, though the erection and pooja was conducted. ExP14 clearly indicates that the first defendant had all along was pointing out that the machinery never functioned in a proper manner even on the date of erection; that the spooler part of the machinery was totally defective; that the engineers of the plaintiff-company had agreed to set right those things also and this caused further delay and it was in such circumstance, the bank guarantee, which was towards 10% rebate if not commissioned within the stipulated time, had been invoked and submits that when such is the consistent and emphatic evidence, both oral and documentary, the learned trial judge has totally misdirected himself and appreciating the evidence of DW1 and concluding that it is an admission that the commissioning of machinery was complete, whereas, what had been said was that erection was made, but commissioning was never complete.
38. With regard to the maintainability of the suit for mere injunction to restrain the first defendant from enforcing the bank guarantee in its favour or to restrain the bank from fulfilling its obligation under the bank guarantee, learned Counsel for the appellant has drawn the attention of the court to the provisions of Section 41 of the Act and submits that it was it was a clear case where the trial court should not have granted a decree for injunction, having record to the conduct of the plaintiff as well as the second defendant. It is also submitted that the act of enforcement of the bank guarantee, which was for realizing an agreed amount can never be termed as a breach or injury which cannot be compensated in terms of money, as the very enforcement is for being money, and particularly when the plaintiff if at all made good the case for recovery of the amount from the first defendant even after the enforcement of the bank guarantee it can recover the amount and it was not as though the plaintiff was without any remedy or options.
Page 0285
39. Learned Counsel for the appellant has also drawn the attention of the court to the exposition of law in this regard in A Treatise on the Law and Practice of Injunctions, by William Williamson Kerr, sixth edition by John Melvin Paterson, at Chapter-X, page 411, and the discussion regarding the circumstances in which the and cases in which court will refuse an order of injunction, that if the alleged breach by a party to the contract is of such nature that if adequate compensation can be had for such breach, court will not grant an order of injunction.
40. With regard to the conduct of the parties, the learned Counsel for the appellant, relying on the decision of the Lahor High Court in the case of Basheshar Nath v. Moga Municipality AIR 1940 Lahore 69, and submits that with regard to the conduct of the plaintiff and the second defendant-bank, an order of injunction should be declined.
41. Learned Counsel for the appellant has also submitted that particularly in the absence of a plea of fraud in the context of furnishing of bank guarantee by the second defendant in favour of the first defendant company, a suit for mere injunction does not lie and in support of this submissions placed reliance on the following decisions:
1. Bses Ltd [Now Reliance Energy Ltd.] v. Fenner India Ltd. ;
2. Oil and Natural Gas Corporation Ltd. v. SBI, Overseas Branch, Bombay .
3. Svenska Handelsbanken v. Indian Charge Chrome ;
4. Federal Bank Ltd v. V.M. Jog Engineering Ltd. (2001) SCC 663 and submitted that having regard to the principles laid down in these decisions, the plaintiff could not have maintained the suit for either restraining the second defendant bank from honouring the bank guarantee or for restraining the first defendant from invoking its right under the bank guarantee, unless it had sought for a declaration that the bank guarantee by itself was unenforceable, because of the non-fulfilment of the conditions subject to which the bank guarantee could have been enforced, and such relief having not been sought for, the suit should have been dismissed.
42. Sri Sriranga, learned Counsel for the successful plaintiff, on the other hand, submits that though the first defendant had invoked the bank guarantee on 20-1-1984, it was not open to the first defendant to invoke the bank guarantee, as the plaintiff had time till 31-1-1984 -Page 0286 validity period of the bank guarantee - for completing the installation of the machinery and therefore the bank was justified in not honouring the bank guarantee but asking for details etc. It is also submitted by Sri Sriranga that the plaintiff had completed the installation before the agreed date and therefore the first defendant was not entitled to invoke the bank guarantee and as such the plaintiff could file a suit to restrain the firs defendant from invoking and enforcing the bank guarantee, particularly when the first defendant did not agree to return the bank guarantee even alter 15 days after the installation and when the first defendant threatened further action in terms of the letter dated 20-6-1984 [ExP14], which gave rise to the cause of action for filing the suit. Learned Counsel for the first respondent-plaintiff submits that the suit has been rightly decreed and no interference is warranted in this appeal; that the first defendant was not entitled to invoke the particular bank guarantee which was only for completing the installation and commissioning of the machinery within the agreed time and for defects and problems arising after the period for commissioning was over, assuming for argument's sakle without admitting that there were such defects, the first defendant could have only looked up to the performance guarantee and the terms governing during the warranty period and could not have invoked the particular bank guarantee which was meant to cover the condition of due commissioning of the machinery within the agreed time.
43. With regard to the maintainability of the suit, Sri Sriranga submits that having regard to the provisions of Sections 36 and 38 of the Act the suit was very much maintainable, particularly having regard to Sub-section (2) of Section 38 read with Clause-d of Sub-section (3) of Section 38 and submits that the plaintiff's right for full payment upon installation of machinery was threatened by the invocation of bank guarantee and particularly the possibility of the multiplicity of judicial proceedings and as a preemptive measure, the plaintiff has filed the suit for injunction and it is rightly decreed by the trial court in the light of the provisions of Section 38 of the Act.
44. In this regard, the learned Counsel has placed reliance on the provisions of Section 128 of the Contract Act and submits that the bank guarantee is in the nature of a tripartite agreement as though the same was issued in favour of the beneficiary [first defendant], it being at the instance of the plaintiff and the consideration for issue of the bank guarantee being the supply of machinery by the plaintiff, the plaintiff could have very well maintained the suit for injunction against the defendants, though was not an actual party to the assurance by the bank in favour of the first defendant.
45. With regard to the submission of the learned Counsel for the appellant by placing reliance on various authorities that the suit for injunction to restrain the enforcement of the bank guarantee cannot be maintained unless there is a plea of fraud in the context of furnishing of the bank guarantee, submission of Sri Sriranga is that the decisions relied upon by the learned Counsel for the appellant are all decisions rendered in the context of enforcement of unconditional bank guarantee executed by banks in favour of beneficiaries and in the context of such unconditional assurance held out by the banks. Learned Counsel submits that in the present case, the bank guarantee itself was not an unconditional one; that the enforcement of the Page 0287 bank guarantee was subject to the condition as had been mentioned in the very instrument; that the beneficiary could invoke the bank guarantee only after the breach is notified to the plaintiff calling upon the plaintiff to fulfil the breach, hold negations in this regard and only in the event of failure of such negotiations, bank guarantee could be invoked; that such development having not taken place, the first defendant was not at all justified in invoking the bank guarantee and therefore the suit had been properly filed to restrain the first defendant from enforcing the bank guarantee and the second defendant from honouring the bank guarantee. In this regard, the learned Counsel placed reliance on the following decisions:
1. Corporation of The City of Bangalore v. M. Papaiah ;
2. Puttabai v. Vaijnath ;
3. Chinnappa v. Corporation of The City of Bangalore ;
4. Hindustan Construction Company Ltd. v. State of Bihar .
and urges for dismissal of the appeal, affirming the decree granted by the trial court. Reliance is also placed on the decision of the Supreme Court in the case of M.S. Madhusoodhanan v. Kerala Kaumudi Pvt. Ltd. AIR 2004 SC 909.
46. It is also submitted that though the suit for a restraint order was filed after the invocation of the bank guarantee, the cause of action being a continues one, so long as the bank guarantee had not been honoured by the bank, it survives thereafter also and therefore the suit laid even as on 28-6-1984 was very much maintainable for the relief of injunction and also that the suit for a bare injunction can be maintained without seeking for a declaration, as the condition for invoking the bank guarantee had not been fulfilled.
47. I have bestowed my thought to the rival submissions at the Bar, perused the records comprising of pleadings and the evidence in the case, and have examined the submissions at the Bar and in the light of the legal position, particularly in the light of the authorities cited by the learned Counsel.
48. On the factual aspect, I find the pleadings in the plaint do no indicate the date by which the commissioning of the machinery should have been completed, failure of which would have entitled the first defendant a rebate of 10% on the price of the machinery. On the other hand, the pleadings only indicate that the bank guarantee which had been executed for such purpose in lieu of the reduction money of 10% of the value of the machinery supplied, which amount though could have been retained by the first defendant was nevertheless realized with the furnishing of the bank guarantee, which had been initially executed with its validity period upto 31-1-1983 was being extended subsequently on the instructions of the plaintiff upto 30-9-1993 and thereafter upto 31-1-1984.
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49. There is no express plea that the duration of the bank guarantee was co-extensive with the time for completion of the installation of the machinery. On the other hand, the learned trial judge while found that there was considerable delay in supply of machinery when the bank guarantee was invoked on 20-1-1984 by the first defendant calling upon the bank to honour the guarantee, it is an admitted fact on both sides that the installation was not complete by this date and the first defendant was constrained to invoke the bank guarantee as the bank guarantee was due to expire by 31-1-1984 and with no prospect of either completion of the installation or the extension of the bank guarantee, the first defendant was compelled to invoke the bank guarantee.
50. Even as per the understanding of the parties, assuming that the validity period of the bank guarantee was being extended from time to time, in the absence of an express plea that the deadline for commissioning the machinery also had been extended up to that date, it cannot be assumed that the plaintiff had successfully completed the commissioning before the deadline. In this regard the plaintiff has neither pleaded nor proved its own version that the plaintiff had successfully completed the commissioning of the machinery within the agreed time and therefore the first defendant could not have invoked the bank guarantee. On the other hand, title consistent plea and evidence that was let in on behalf of the first defendant is that the plaintiff had not completely commissioned the machinery; that the machinery even on the date of installation and initial running of the machinery was found to be defective; that it did not function properly; that all parts of the machinery were not in working condition and particularly the spooler part of the machinery was no installed or commissioned at all.
51. This aspect of the state of affairs having not been seriously countered by the plaintiff even in terms of its oral and documentary evidence, I find that the issue No. 1 which has been answered by the trial court in favour of the plaintiff is clearly an unsustainable finding and this issue should have been answered against the plaintiff and it should have been held that the plaintiff has not proved that the bank guarantee No. 23/1983 dated 13-6-1983 is not liable to be invoked or enforced as had been contended. If this issue is answered against the plaintiff, the consequential relief automatically falls to ground and the relief of injunction cannot be sustained and therefore the second issue is also to be answered against the plaintiff and consequently, the suit is to be dismissed.
52. Be that as it may, more importantly, I find that even the very suit was not maintainable in law. The suit is one for restraining the beneficiary from invoking the bank guarantee and the bank from performing its obligations under the contract. In fact in so far as the first defendant is concerned, the first defendant having already invoked the bank guarantee, the relief of injunction does not survive against the first defendant. In so far as the second defendant-bank is concerned, under the bank guarantee its obligation is only in favour of the first defendant, the beneficiary, even though the bank guarantee itself might have been issued at the instance of the plaintiff and the plaintiff would have provided the wherewithal for issue of the bank guarantee by the bank in favour of the first defendant. The bank guarantee Page 0289 is not a tripartite agreement as is sought to be contended on behalf of the plaintiff. It is a bipartite agreement between bank [second defendant] and the beneficiary [first defendant]. It is an assurance by the bank that it will pay the stipulated amount, whether conditionally on the happening of certain event or otherwise but on being invoked or unconditionally simply on being invoked. The bank guarantee, which is issued with an assurance in commercial truncations has its efficacy only because of the assurance given and the trustworthiness and reputation of the person giving the assurance. If the bank should be relieved of its obligation for payment under this contract, which is undisputedly a valid contract and it being not the case of either party that this contract is also vitiated because of some fraud or misrepresentation played by the beneficiary either on the bank or on the plaintiff company at whose instance the bank guarantee has been issued, the bank is never relieved of its obligation under the contract from fulfilling its obligations under a valid contract. Unless it is declared that either the contract i.e. the bank guarantee itself is invalid or at least that the bank guarantee was not enforceable because of the non-fulfilment of the terms of the guarantee, there is no way of the consequential relief of injunction being granted to restrain the bank from honouring the bank guarantee. In terms of Section 37 of the Act, particularly, Sub-section (2) of Section 37, under which a perpetual injunction can only be granted by the decree made at the haring and upon merits of the suit, the defendant is thereby perpetually enjoined from the assertion of a right or from the commission of an act, which would be contrary to the rights of the plaintiff. In the present case, the relief of perpetual injunction to restrain the bank from honouring the bank guarantee could have been granted only on determination of the merits of the terms of the bank guarantee and after giving a decision on merits and not otherwise. The plaintiff having not made good the invalidity of the bank guarantee or compliance or otherwise of the terms of the guarantee as the subject matter of the suit, by a proper plea and not having followed up with proper prayer of declaration of the observance or non-observance of the terms of the bank guarantee subject to which it was to be enforced, could never have sought for the relief of perpetual injunction to relieve the bank from performing its obligation under the guarantee. In the absence of a declaratory relief regarding the rights of the first defendant under the guarantee and the consequential liability of the second defendant under the very guarantee, a mere suit for perpetual injunction was not maintainable.
53. It is also of significance to notice in this regard that the plaintiff valued the suit for the purpose of court fee and jurisdiction at a sum of Rs. 1,000/- against each of the defendants and not valued the subject matter of the suit on the amount of the bank guarantee viz., for a sum of Rs. 1.75 lakh, which the second defendant was required to pay in favour of the first defendant on the guarantee being invoked. The suit was never valued on the basis of the value of the bank guarantee and the suit was not laid for determination upon merits of the terms and conditions of the bank guarantee and its validity, but was simply one for a mere injunction, which is not maintainable in law.
54. Even in terms of the provisions of Section 38 of the Act, which is illustrative of the situation wherein perpetual injunction can be granted by courts, the Page 0290 plaintiff had never made out a case for grant of perpetual injunction under any sub-sections of Section 38, though Sri Sriranga, learned Counsel for the respondent-plaintiff has drawn the attention of the court to Sub-sections (2) and (3) of Section 38 of the Act and also to Section 128 of the Contract Act, 1872. The statutory provisions relied upon by the learned Counsel for the plaintiff are:
Section 38 of the Specific Relief Act, 1963:
38. Perpetual injunctions when granted:
(1) Subject to the other provisions contained in or referred to by this Chapter a perpetual injunction may be granted to the plaintiff to prevent the breach of an obligation existing in his favour, whether expressly or by implication.
(2) When any such obligation arises from contract, the court shall be guided by the rules and provisions contained in Chapter-II (3) When the defendant invades or threatens to invade the plaintiffs right to or enjoyment of property the court may grant a perpetual injunction in the following cases, namely:
(a) where the defendant is trustee of the property for the plaintiff;
(b) where there exists no standard for ascertaining the actual damage caused or likely to be caused by the invasion;
(c) where the invasion is such that compensation in money would not afford adequate relief;
(d) where the injunction is necessary to prevent a municipality of judicial proceedings, Section 128 of the Contract Act, 1872:
128. Surety's liability - The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract.
55. While I do not find any of these provisions enable the plaintiff to seek an order of perpetual injunction in the present situation for restraining the bank from performing its obligations under the guarantee issued by it in terms of an admitted valid contract, the reference to Section 128 of the Contract Act does not help the situation for the reason that even in terms of Section 128, the liability of a guarantor being co-extensive with that of the principal debtor, unless it is declared that the principal debtor is not liable, the guarantor is not exonerated of its liability and until and unless a declaration had been sought for in favour of the plaintiff to the effect that the plaintiff had duly complied its obligations under the main contract with the first defendant i.e. commissioning of machinery supplied by it well within the agreed time, there was no way of the plaintiff having sought for a restraint order against either of the defendants in the context of the bank guarantee wherein though it was one subject to a particular condition therein, but the relief in respect of the performance or non-performance of the condition having not been made subject matter in the suit, the suit was not tenable.
56. While it is true that most of the decisions relied upon by the learned Counsel for the appellant were rendered in the context of enforcement or non-enforcement of the terms of the obligations under unconditional bank Page 0291 guarantees issued by banks, the legal principles for grant of relief of perpetual injunction by way of interference through a restraint order from restraining a bank from performing its commercial legal obligations by banks and the rights of beneficiaries in enforcement of the same, has nevertheless been discussed in these decisions and it has been held that unless there is an allegation of breach of condition of terms of the main contract by one of the parties to the main contract at whose instance the bank guarantee had been issued in favour of the either party and who is complaining that there is breach of contract, an order of injunction cannot be granted against the bank from honouring the demand for encashment of the bank guarantee by the beneficiary and a suit of this nature cannot be maintained.
57. This is for the main reason that while encashment of bank guarantee by itself is not determination of the rights and liabilities of the parties to the contract, the effect of encashment of bank guarantee is only that the stipulated amount is being paid by the bank to the beneficiary and no more. The justification for invoking the bank guarantee by the beneficiary, the entitlement to the amount so encashed by the beneficiary and for the retention of it, legality of the invocation, can all be gone into and the parties complaining of can be suitably compensated in a properly laid suit where all such questions can be determined at the instance of the aggrieved party. Such being the nature of the matter and there existing ample options for the aggrieved person for remedying the breach and loss, if any, even in terms of the provisions of Section 41(h) of the Act, which reads as under:
41. Injunction when refused: An injunction cannot be granted --
(h) when equally efficacious relief can certainly be obtained by any other usual mode of proceeding except in case of breach of trust;
A suit of this nature should necessarily be dismissed and the trial court should not have decreed the suit.
58. I find in the present case, even the provisions of Section 41(i) of the Act, which is one about the conduct of the plaintiff or his agents which disentitles him to the assistance of the court, is also attracted, particularly, having regard to the sequence of dates and developments. The first defendant had invoked the bank guarantee on 20-1-1984 during its currency, as the validity period was upto 31-11984. The second defendant bank by way of a reply only sought some particulars for honouring the bank guarantee. The first defendant had all along made clear that according to it, the commissioning was not completed within the stipulated agreed period and therefore the bank guarantee was being invoked and it was claiming full amount. Notwithstanding the guarantor the bank procrastinated and did not honour its obligations to keep up its guarantee. It is rather surprising that the second defendant bank neither honoured the guarantee nor specifically and emphatically replied to the first defendant that it was not honouring the bank guarantee, as it was satisfied that the conditions for invoking the guarantee had not been fulfilled. It may be noticed that this state of evasiveness continued for a period of six months on the part of bank. I find the bank, a public sector nationalized bank, adopting such an evasive attitude rather surprising and a strong disapproval of its conduct by this Court. To say the least, the bank had not acted as a Page 0292 responsible public sector financial institution, but it allowed its name and reputation to suffer and be sullied. If at all one has to observe it has acted in a partisan manner without any regard to is own commercial obligations and its commitment. In fact the bank's such evasive and irresponsible conduct has continued, as the bank neither appeared before trial court nor before this Court. The bank did not realize that by doing so, it was tarnishing its own image and lowering its reputation in the eyes of the public at large. Such conduct on the part of commercial organizations cannot inspire the confidence of men in trade and commerce or inspire confidence to act on any assurance held out by them. It is rather unfortunate that the second defendant bank had acted in such an irresponsible manner.
59. But that apart, what is of greater significance in the present case is that the suit for injunction for restraining the bank was laid before the court six months after the invocation of the guarantee and even when the bank had not cared for honouring the guarantee for six months. If the conduct of the bank was any indication of its course of action, there could not have been any apprehension on the part of the plaintiff that the bank would fulfil its guarantee immediately or in the near future and a restraint order was necessary. In fact the cause of action as pleaded by the plaintiff was not real, but only a ruse to file the suit and somehow try and wriggle out of the consequence of its own actions.
60. It is also rather surprising that in a suit of this nature, the trial court not only issued an order of ad interim temporary injunction but also made it absolute without any basis in law and contrary to the legal position.
61. It is also necessary to observe in this context that a banker who issues a bank guarantee does not act as an adjudicator of the rights of the parties nor can the bank itself sit in judgment over its own actions and conducts to justify non-performance of its obligations under a contract. Even if as contended by the learned Counsel for the respondent-plaintiff, it should be taken that the bank was in the position of a surety, it is not open to a surety to question the liability or otherwise of the principal debtor or the justification for the principal debtor to have incurred the liability.
62. In the present case, the bank in fact had never apprised the first defendant that it was not liable to honour the guarantee for the reason that the first defendant was not entitled to invoke the guarantee. The bank could not have fallen to inaction for as long as six months, waiting for the plaintiff to approach the court and seek for a restraint order. Such conduct on the part of the plaintiff and the second defendant bank clearly disentitles them to any assistance from the court and even on this ground the suit for injunction even if otherwise tenable is necessarily to be dismissed.
63. In the result, this appeal is allowed and the judgment and decree under appeal is set aside. The suit of the first respondent-plaintiff is dismissed with costs. Cost in this appeal is quantified at a sum of Rs. 5,000/- [Rupees five thousand only] to be paid by the first respondent in favour of the appellant. Registry to draw a decree accordingly.