Calcutta High Court
M/S. Pollen Dealcom Private Limited & ... vs Chambal Fertilisers And Chemicals Ltd. ... on 1 March, 2010
Equivalent citations: AIR 2010 CALCUTTA 112, 2010 (2) CAL LT 1, (2010) 92 ALLINDCAS 695 (CAL), (2010) 2 CAL HN 85, (2010) 3 BANKCAS 334, (2010) 4 ICC 158
Author: Bhaskar Bhattacharya
Bench: Mohit S. Shah, Bhaskar Bhattacharya
1
IN THE HIGH COURT AT CALCUTTA
Civil Appellate Jurisdiction
(Original Side)
Present:
The Hon'ble Mr. Mohit S. Shah, Chief Justice
And
The Hon'ble Mr. Justice Bhaskar Bhattacharya
A.P.O.T. No. 454 of 2009
G.A. No. 3154 of 2009
C.S. No. 332 of 2009
M/s. Pollen Dealcom Private Limited & Anr.
Versus
Chambal Fertilisers and Chemicals Ltd. Ors.
For the Appellants/Petitioners: Mr. Abhrojit Mitra,
Mr. S. Mukherjee,
Mr. R. Upadhya,
Mr. Santanu Chatterjee.
For the Respondent No.1: Mr. Jayanta Mitra,
Mr. Utpal Bose,
Mr. D. N. Sharma.
For the Respondent No.2: Mr. Sankar Singh,
Mr. U.K. Singh.
Heard on: 28.02.10, 05.02.10 & 19.02.10.
Judgment on: March 01, 2010.
Bhaskar Bhattacharya, J.:
This appeal is at the instance of the plaintiffs in a suit for declaration that the two bank-guarantees, both dated 29th July, 2009, being Annexure 'C' and 'D' 2 to the plaint, are null and void, for mandatory injunction upon the defendants to forthwith make over the aforesaid bank-guarantees dated 29th July, 2009 to the plaintiffs with further prayer for perpetual injunction restraining the defendant No.1 from receiving any payment in respect of those two bank-guarantees, mentioned above, given by the defendant no. 2, the Bank, and for a decree of Rs.1 crore as damages from the defendant no. 1. The other consequential reliefs of interest and injunction were also prayed for.
The case made out by the plaintiffs in the aforesaid suit may be summed up thus:
(a) The plaintiffs are the owners of an area of 30,419 sq. ft. on lower and upper ground floor, first floor and second floor together with 32 car parking spaces at the building popularly known as "Avani Heights" at Premises No.59A, Chowringhee Road, Kolkata-20.
(b) On July 29, 2009, an agreement was entered into by and between the plaintiffs on one hand and the defendant No.1 on the other, for lease of the demised portion for a period of 9 years at the rent of Rs.91/- per sq. ft. plus service tax. The said agreement was entered into at the office of the plaintiffs at 119, Park Street, Kolkata-16 within the jurisdiction of this Court.
(c) In terms of the said agreement, the defendant No.1 deposited a sum of Rs.83,04,000/- which is equivalent to the amount of rent for three months as interest-free security-deposit and the plaintiffs furnished 3 two separate bank-guarantees both issued by the defendant No.2 for an aggregate sum of Rs.83,04,000/-. The relevant terms of the said agreement pertaining to furnishing of those bank-guarantees and the security deposit are set out below:
"An amount of Rs.83,04,000/- (Rs.2370000/- and Rs.5934000/- to M/s. Pollen Dealcom Pvt. Ltd. and Standard Vinimay Pvt. Ltd. respectively in terms of clause no.5 is payable by the Lessee to the Lessor at the time of signing of this term sheet. This amount will be forfeited totally if India Steamship (A division of Chambal Fertilisers and Chemicals Ltd.) do not take possession of the aforesaid space and starts paying monthly rentals within the aforesaid time of ninety days. However, if the Lessor fails to give possession within October, 09 or fails to make out a good and marketable title of the aforesaid premises to the Lessee on or before 15th October, 2009, the amount will be returned immediately to the Lessee. The refund if any shall be secured by irrevocable bank guarantee."
(d) The defendant No.1 by a letter dated August 24, 2009 expressed its willingness to takeover possession of the demised portion and represented that it had already made arrangement for meeting its architects with the object of commencing work in the demised portion for making it usable as its office. The defendant No.1 also agreed to take possession either of the entire demised portion or a part thereof.
(e) All of a sudden, on August 31, 2009, the defendant No.1 made a requisition on title and also asked for the various documents i.e. KMC tax receipts, copy of sanctioned plan and occupancy certificate. Even though the defendant No.1 had already received the copies of all the 4 documents mentioned in its letter, the plaintiffs offered immediate inspection of the originals thereof.
(f) Subsequently, the defendant No.1 caused further inspection of the demised portion with architects. According to the defendant No.1, necessary additions and alterations had to be made to make it suitable for running an office therefrom. Mainly on this pretext, the possession of the ground floor and the second floor portions were not taken by the defendant No.1.
(g) By September 24, 2009, the plaintiffs managed to get the entire demised portion vacated and for this purpose, the plaintiffs had to incur substantial expenditure and all was done with the object of fulfilling the terms of the said agreement and by relying upon the representation of the defendant No.1 that it would complete the deal. The plaintiffs had obtained a loan of Rs.10 crore by securitizing the rentals to be received from the said demised portion.
(h) On September 24, 2009, the plaintiffs offered possession of the remaining portion of the first floor which was still in the occupation of one of the erstwhile tenants. As such, the plaintiffs offered vacant possession of the entirety of the demised portion to the defendant No.1 and made repeated requests to the defendant No.1 to take possession thereof.
(i) On October 20, 2009, the defendant No.1, for the first time, contended that the change of user of the demised portion is a pre-requisite 5 condition for execution of the lease-deed. With the object of completing the deal with the defendant No.1 and to maintain good relationship with the defendant No.1, the plaintiffs at one stage had even offered to indemnify the defendant No.1 with such fine as might be imposed by the refusal of the KMC for the change of user of the demised portion. The defendant No.1 had accepted such offer of the plaintiffs but thereafter backed out from the same.
(j) The defendant No.1 was well aware of the fact that change of user from a showroom to an office is granted as a matter of course by the KMC but that is not so in case of a reverse situation. The defendant No.1 was also well aware of the fact that the KMC as a matter of practice did not stop user as office room from that of a showroom pending an application for conversion.
(k) At the meeting held between the parties on November 11, 2009, the defendant No.1 wanted to pull out from the deal and, at that stage, the plaintiffs became entitled to forfeit the said sum of Rs.83,04,000/. This was clearly made known to the defendant No.1 at such meeting and at that stage, the defendant No.1, for the first time, threatened to invoke the bank-guarantees in question.
(l) Again the defendant No.1 by an e-mail sent at 10:51 a.m. on November 12, 2009 forwarded a draft agreement and created an impression in the mind of the plaintiffs that it was willing to complete the deal.
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(m) The two bank-guarantees, mentioned above, are conditional in nature. The relevant terms of the underlying contract, that is to say, the Term Sheet of July 29, 2009 have been expressly incorporated in the bank-guarantees. The defendant No.1 was entitled to invoke the bank-guarantees only on the happening of any of the following two events:
(i) If the plaintiffs failed to give possession of the demised portion by end of October, 2009;
(ii) If the plaintiffs failed to make out a good and marketable title of the demised portion on or before October 15, 2009.
(n) On 12th November, 2009, in the evening, the plaintiffs received by electronic mail a letter of even date from the defendant No.1 making false allegation as to shortfall of area on the first floor to the extent of 300 sq. ft. and on that basis, the defendant No.1 had alleged breach of the terms of the contract by the plaintiffs and demanded refund of the security deposit.
(o) The plaintiffs asserted that there was no discrepancy in the total area mentioned in the agreement or in the floor wise measurement. If at all, there is any shortfall of area in the first floor, the same is made up in the second floor and even if, there is a shortfall in the total area, it would also not result in any loss to the defendant No.1 as the rent is determined as "per sq. ft. basis".
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(p) The defendant No.1 has invoked the bank-guarantees on 12th November, 2009 and by invoking such bank-guarantees, it at all material times intended to commit fraud upon the plaintiffs. The defendant No.1 had perpetrated fraud upon them which is of egregious nature vitiating the underlying transaction and the invocation is also per se fraudulent, certain particulars of which are given below:
(i) The Defendant No.1 never intended to take on lease the demised portion and had fraudulently induced the Petitioners into entering into the said agreement of July 29, 2009.
(ii) The Defendant No.1 knowing full well from the very inception that the demised portion was being used as a showroom and having agreed to take the demised portion without any change of user was fraudulently raising the plea of permission of KMC to change the mode of user as a pre-requisite condition for the completion of the deal.
(iii) The Defendant No.1, knowing full well that the conditions required to be fulfilled for invocation of the bank-guarantees had not been satisfied in the present case, had fraudulently invoked the bank-guarantees.
(iv) The Defendant No.1, knowing full well that the Plaintiffs have suffered substantial loss far in excess of the security deposit 8 amount, has invoked the bank-guarantees with the object of causing financial loss.
(v) The Defendant No.1 till the end of September, 2009 has fraudulently and intentionally induced the Plaintiffs to believe that it was ready and willing to complete the transaction without in fact even intending to do so.
(vi) The Defendant No.1 has fraudulently raised the plea of shortfall in the first floor area with the sole object of invoking the bank-guarantees.
(vii) The Defendant No.1 in spite of being well aware of the fact that there was no shortfall in the area of the demised portion or even in the internal dimensions and also knowing full well that the rent was fixed on "per sq. feet" basis has fraudulently raised the plea of shortfall of area with the object of defrauding the Plaintiffs.
(viii) Despite the fact that the bank-guarantee could only be invoked on existence of certain conditions, the Defendant No.1 had invoked the bank-guarantee without fulfillment those conditions.
(q) Despite the fact that it is mentioned in the bank-guarantees that those could be invoked only for the reason of breach by the plaintiffs of not giving possession within October, 2009 or for not making out clear or marketable title before 15th October, 2009, the defendant No.1 invoked 9 the said bank-guarantees even though those conditions had not been fulfilled. Hence, the suit.
On the selfsame allegations, as made in the plaint, the plaintiffs came up with an application for temporary injunction for restraining the defendant No.1 from receiving any payment in respect of the two bank-guarantees, mentioned above, and for appointment of a Receiver to take possession of the bank- guarantees dated 29th July, 2009. There was also an alternative prayer for attachment before judgement.
A learned Single Judge of this Court by an order dated 16th November, 2009 passed an interim order directing that no step should be taken to invoke the bank-guarantees by the defendants on the understanding that a sum of Rs.83,04,000/- would be kept apart by the plaintiffs in a separate account earmarked to the said proceedings by 18th November, 2009.
Ultimately, another learned Single Judge of this Court, by order dated November 30, 2009, was pleased to dismiss the application for temporary injunction with costs on the ground that there was no basis for the plaintiffs to seek any of the orders prayed for in the petition as the bank was under obligation to release the payments upon receipt of the letters of invocation and there was no just ground for the bank to dishonour its unconditional commitment.
Being dissatisfied, the plaintiffs have come up with the present appeal. 10 Mr. Abhrojit Mitra, the learned counsel appearing for the appellant, has strenuously contended before us that the learned Single Judge erred in law in dismissing the application for temporary injunction by totally overlooking the admitted position that the conditions for invoking the bank-guarantees had not been fulfilled by the respondent No.1 as the said respondent in its letter of invocation did not dare to assert breach of the terms of the agreement at the instance of the appellants which is sine qua non for honouring the demand of invocation. Secondly, Mr. Mitra contends that the allegation of fraud pleaded by his client has not at all been taken note of by the learned Single Judge while rejecting the application notwithstanding the fact that the defendant No.1 had not used any affidavit denying the allegations of fraud pleaded by his client. At any rate, Mr. Mitra continues, the learned Single Judge while dismissing the application for temporary injunction did not follow the well-accepted principles which are required to be followed while disposing of an application of this nature. Mr. Mitra, therefore, prays for setting aside the order impugned and allowing the application for temporary injunction. In this connection, Mr. Mitra relied upon the following decisions:
1) U.P. Cooperative Federation Ltd. vs. Singh Consultants and Engineers
(p) Ltd. reported in (1988) 1 SCC 174;
2) Omega Shelters Pvt. Ltd. vs. Unit Construction reported in 2009(4) CHN 22;11
Mr. Jayanta Kumar Mitra, the learned senior advocate appearing on behalf of the respondent No.1, has, on the other hand, opposed the aforesaid contentions of Mr. Abhrojit Mitra and has contended that his client has in its letter of invocation clearly alleged breach of the agreement and has also demanded the amount mentioned in the terms of the bank-guarantees and thus, the allegation of improper invocation of the guarantees is not tenable in the eye of law. Mr. Mitra further contends that the learned Single Judge rightly ignored the alleged fraud because of want of sufficient particulars of fraud in the plaint and in the application of temporary injunction. According to Mr. Mitra, in order to obtain an injunction restraining invocation of the unconditional bank- guarantees, the fraud alleged must be of egregious nature and that such fraud must be alleged to have been made prior to the agreement for bank-guarantee given by one of the parties. Mr. Mitra submits that the learned Single Judge in this case has considered the application in its proper perspective and has applied the correct tests while dismissing the application and, therefore, we should not interfere with the just discretion exercised by the learned Trial Judge. Mr. Mitra, consequently, prays for dismissal of this appeal. In support of his contention, Mr. Mitra relies upon the following decisions:
1) U. P. Cooperative Federation Ltd. vs. Singh Consultants and Engineers (P) Ltd. reported in (1988) 1 SCC 174;
2) U. P. State Sugar Corporation vs. Sumac International Ltd. reported in (1997) 1 SCC 568;12
3) Reliance Salt Ltd. vs. Cosmos Enterprises and another reported in (2006) 13 SCC 599;
4) Himadri Chemicals Industries Ltd. vs. Coal Tar Refining Co. reported in (2007) 8 SCC 110;
Therefore, the question that arises for consideration in this appeal is whether the learned Trial Judge was justified in dismissing the application for temporary injunction even before filing of the written objection by the respondent No.1.
Before deciding the said question, we should bear in mind the scope of investigation at the instance of an appellate Court dealing with an appeal against a discretionary order like temporary injunction, appointment of receiver etc. It is now settled law that in such an appeal, the appellate Court generally does not interfere with the discretion exercised by the Trial Court unless it appears that while exercising such discretion, the learned Trial Judge has wrongly applied the principles for grant of such discretion or unless it is established that such discretion has been unreasonably or capriciously exercised. In dealing with such an appeal, the appellate Court would not be justified in interfering with the discretion under the appeal solely on the ground that if it considered the matter at the trial stage, it might have come to a contrary conclusion. (See Uttar Pradesh Co-operative Federation Ltd. vs. Sunder Bros. Delhi reported in AIR 1967 SC
249). In a subsequent case of Manjunath Anandappa Urf Shivappa Hansi vs. Tammanasa and others reported in AIR 2003 SC 1391, the Apex Court reiterated 13 the aforesaid principles which are required to be followed while hearing an appeal against a discretionary order by observing that "an appellate power interferes not when the order appealed is not right but only when it is clearly wrong. The difference is real, though fine."
Keeping in mind the aforesaid principles, we now propose to consider whether the learned Single Judge was justified in dismissing the application for temporary injunction even before filing of the written objection by the respondent No.1.
The law relating to grant of injunction in respect of unconditional bank- guarantee is now well settled. A bank-guarantee is a suitable method of securing payment of money in commercial dealings because the beneficiary, under the guarantee, is entitled to realize the whole of the amount under that guarantee in terms thereof irrespective of any pending dispute between the person on whose behalf the guarantee was given and the beneficiary. It is for this reason that the Courts are reluctant in granting an injunction against the invocation of bank- guarantee except in the case of fraud, which should be an "established fraud"
and not a mere allegation of fraud, or where irretrievable injury was likely to be caused to the Guarantor. This was the principle laid down by the Supreme Court in various decisions. In the case of U. P. Co-operative Federation Ltd. vs. Singh Consultants and Engineers Pvt. Ltd., (1988) 1 SCC 174, the law laid down in Bolivinter Oil SA vs. Chase Manhattan Bank, (1984) 1 All ER 351 was approved and it was held that an unconditional bank-guarantee could be invoked in terms 14 thereof by the person in whose favour the bank-guarantee was given and the Courts would not grant any injunction restraining the invocation except in the case of fraud or irretrievable injury. In Svenska Handelsbanken vs. Indian Charge Chrome (1993 AIR SCW 4002 : AIR 1994 SC 626), Larsen and Toubro Ltd. vs. Maharashtra State Electricity Board, (1995 AIR SCW 4134 : AIR 1996 SC
334), Hindustan Steel Works Construction Ltd. vs. G.S. Atwal and Co.
(Engineers) (P) Ltd., (1995 AIR SCW 3821 : AIR 1996 SC 131), National Thermal Power Corporation Ltd. vs. Flowmore (P) Ltd., (1995 AIR SCW 430 : AIR 1996 SC
445), State of Maharashtra vs. National Construction Co., (1996) 1 SCC 735 :
(1996 AIR SCW 895 : AIR 1996 SC 2367), Hindustan Steel Works Construction Ltd. vs. Tarapore and Co., (1996 AIR SCW 2861 : AIR 1996 SC 2268) as also in U.P. State Sugar Corporation vs. Sumac International Ltd., (1997 AIR SCW 694 :
AIR 1997 SC 1644 : 1997 All LJ 638), the same principle has been laid down and reiterated. In a recent case of Reliance Salt Limited vs. Cosmos Enterprises and another reported in (2006) 13 SCC 599, it was further pointed out that bank-
guarantee constitutes an agreement between the Banker and the principal, albeit, at the instance of the promisor and when a contract of guarantee was sought to be invoked, it was primarily for the Bank to plead a case of fraud and not for a promisor to set up a case of breach of contract. It was further held therein that the fraud, which vitiates the contract, must have a nexus with the acts of the parties prior to entering into the contract and subsequent breach of contract on the part of a party would not vitiate the contract itself. (See paragraphs 17 and 19 of the judgement).15
Keeping in view the aforesaid principles, we first propose to ascertain whether the bank-guarantees involved herein were really unconditional in nature and what are the conditions required for invocation of such guarantee.
The relevant terms of the guarantee given by the Bank (Respondent No.2) are quoted below:
"In consideration of The Lessee having made Security Deposit of Rs.23,70,000/- (Rupees Twenty Three Lac Seventy Thousand Only) to The Lessor being amount equivalent to 3 (Three) months rental in term of clause 5 of the Term Sheet dated 29th July, 09.
1. We, the Axis Bank Limited, Bistupur, Jamshedpur (hereinafter referred to as "the Bank" do hereby undertake to pay The Lessee an amount not exceeding Rs.23,70,000/- (Rupees Twenty Three Lac Seventy Thousand Only) against any claims because of failure on the part of the Lessor to give possession of the 30,419 SF of chargeable area in the Premises popularly known as Avani Heights at 59A Chowringhee, - 700020 within 31st October, 2009 or failing to make out a good and marketable title of the said area of 30419 on or before 15th October 2009.
2. We, the Bank, do hereby undertake to pay the amount due and/or payable under this guarantee without any demur, merely on demand from The Lessee stating that the amounts claimed is due by reason of any breach of the said Term Sheet by The Lessor which are reproduced as below:
"An amount of Rs.23,70,000/- (Rupees Twenty Three Lac Seventy Thousand) in terms of clause no.5 is payable by the Lessee to the Lessor at the time of signing of this term sheet. This amount will be forfeited totally if India Steamship (A Division of Chambal Fertilisers 16 and Chemicals Ltd) do not take possession of the aforesaid space and starts paying monthly rentals within the aforesaid time of ninety days. However, if the Lessor fails to give possession within October 2009 or fails to make out a good and marketable title of the aforesaid premises to the lessee on or before 15th October 2009, the amount will be returned immediately to the Lessee. The refund, if any, shall be secured by irrevocable bank guarantee."
Any such demand made on the Bank shall be conclusive as regard the amount due and payable by the Bank under the guarantee. However our liability under this guarantee shall be restricted to an amount not exceeding Rs.23,70,000/- (Rupees Twenty Three Lac Seventy Thousand Only).
3. We, the Bank, further agree that the guarantee herein contained shall remain in full force and effect during the guarantee period. Unless a demand or claim under this guarantee is made on us in writing on or before the expiry of the guarantee period i.e. 15/11/2009 we shall be discharged from all liability under this guarantee thereafter.
4. We, the Bank, lastly undertake not to revoke this guarantee during its currency except with the previous written consent of the Lessee." A plain reading of the aforesaid terms makes it abundantly clear that the guarantee by the Bank was unconditional in nature and no right was reserved with the Bank to dishonour the same if invoked by the respondent No.1 within the period mentioned, i.e. November 15, 2009. A simple assertion by the respondent No.1 that the amount claimed was due by reason of the breach of the agreement by the appellant was sufficient and such demand by the respondent No.1 made it mandatory for the bank to pay the amount without any demur. The terms of the agreement was also quoted in bank-guarantee itself to avoid any 17 dispute as regards the terms. There was, thus, no scope of investigation at the instance of the Bank to verify the veracity of the claim of the Lessee in the letter of invocation before payment of the guaranteed amount to such person.
Next we propose to consider whether the invocation of the bank- guarantee by the Respondent No.1 was a proper one in accordance with the terms of the guarantee.
The letter of invocation dated November 12, 2009 received by the Bank on November 13, 2009 is quoted below:
"The Manager Axis Bank Ltd.
Bistupur Jamshedpur Dear Sir, Sub.: Invocation of Bank Guarantee No.0120100000307 Amounting to Rs 23,70,000/- Valid till 15th November, 2009 You have issued a Bank Guarantee No.0120100000307 amounting to Rs 23,70,000/- valid till 15th November, 2009 on behalf of M/s Pollen Dealcom Private Limited, having its office at White House, 119, Park Street, Block D, 4th floor, Kolkata - 700016. The said Bank Guarantee was issued in consideration of we being the Lessee for the premises situated at 18 59A, Chowringhee, Kolkata - 700020 given Security Deposit of Rs 23,70,000/- to the lessor i.e. M/s Pollen Dealcom Private Limited, being the amount equivalent to three month's rental in terms of the clause 5 of the Term Sheet dated 29th July, 2009.
Now there is a breach of the terms and conditions of the said Term Sheet as mentioned in the Bank Guarantee. You have undertaken to pay the amount due and payable under the said Guarantee without any demur merely on demand from us.
We therefore demand that the aforesaid sum of Rs 23,70,000/- be paid to us immediately without any further reference whatsoever in nature to any one as promised by you by way of Demand Draft payable at Kolkata. A photocopy of the aforesaid Bank Guarantee is enclosed herewith for your ready reference and record. However, we are ready and willing to deposit the original Bank Guarantee, if so required."
After going through the said letter of invocation, we are convinced that the Respondent No.1 has not only mentioned the amount but has also asserted that the said amount is due and payable in terms of the guarantee for the breach thereof and payable to the said Respondent No.1. After such demand, there was no scope of any argument that the demand was not in accordance with the terms of the guarantee. We are not at all impressed by the submission of Mr. Abhrojit Mitra, the learned counsel for the appellant, that in the letter of invocation, the Respondent No.1 ought to have further mentioned that the amount was payable for the breach of the agreement "at the instance of the Appellant". We have already pointed out that the bank-guarantee was enforceable only at the instance of the lessee and not at the instance of the lessor at any rate and it necessarily 19 followed that invocation was necessitated for the breach of the terms "at the instance of the lessor". Once in the letter of invocation, the agreement sought to be enforced is mentioned in details, the agreed amount is demanded and the breach of such agreement is also alleged, there is no necessity of the further elucidation that such breach was "at the instance of the appellant".
We, thus, find no substance in the first contention of the learned advocate for the appellants that there was no legal invocation of the bank- guarantees.
The next question is whether the plaint and the application for temporary injunction disclose any prima facie case of avoiding the bank-guarantees on the ground of fraud so that there was necessity of disposal of the application only after asking the Respondent No.1 to file written objection dealing with the allegations of fraud. The particulars of fraud pleaded in the application have already been quoted by us in sub-paragraphs (i) to (viii) of paragraph (p) while narrating the plaint case (see page 7-9 of this order). The sum and substance of the allegations is that the Respondent No.1 had all along no intention to perform its part of the agreement and for that reason has first taken a false plea of permission by KMC for change of user as a precondition and thereafter, the allegation of "shortfall of space agreed to be delivered" with the object of improperly invoking the bank-guarantee and such improper conduct amounts to fraud on the part of the respondent No.1.
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We are unable to accept such an allegation as a prima facie case of fraud to avoid invocation of the unconditional bank-guarantee. First of all, if the Respondent No.1 had no intention to comply with the terms of the agreement from the very beginning, it would not have deposited the amount of Rs. 83 lakh and odd in advance and would not engage architect for inspection and remodelling building as admitted by the plaintiffs. It is very difficult to believe that without any intention to enter into any contract for lease from the very beginning, a businessman will invest so much amount of money for no purpose and in the process the Respondent No.1 will not gain in anyway. Secondly, the dispute, even if falsely raised by the Respondent No.1 to avoid the contract for any subsequent unforeseen reasons, such fact cannot afford a ground to the appellants to avoid the enforcement of the bank-guarantee on the ground of fraud. If the allegation of the plaintiffs regarding the mendacity of the plea of shortfall of space is found to be correct in the long run, the suit of the plaintiff for damages will succeed and the plaintiffs will have their remedy by executing the decree that will be passed in their favour; but such allegation of the appellants, even if found to be true, is not a ground for restraining the invocation of the unconditional bank-guarantees in question.
In this connection, we may appropriately refer to the following observations of the Apex Court in the case of Reliance Salt Ltd. vs. Cosmos Enterprises and another (supra), at paragraphs 17 to 19 of the judgement: 21
"17. A claim which is denied or disputed, in the event of necessity for determination of the lis, may not be found to be correct. If the appellant was to allege a breach of contract in a properly framed suit, Respondent 1 could also allege the breach of contract on the part of the appellant herein. Breach of contract by reason of supply of inferior quality of tea or salt or delay in supply or a short supply may render a party responsible for damages for commission of breach of contract, but, breach of contract alone does not lead to the conclusion that a fraud had been committed thereby. It is contended that commission of fraud would include any act to deceive but then such act must be confined to acts committed by a party to a contract with intention to deceive another party or his agent or to induce him to enter into a contract. Fraud, which vitiates the contract, must have a nexus with the acts of the parties prior to entering into the contract. Subsequent breach of contract on the part of a party would not vitiate the contract itself.
18. "Contract of guarantee" is defined under Section 126 of the Contract Act in the following terms:
"126. 'Contract of guarantee', 'surety', 'principal debtor' and 'creditor'.--A 'contract of guarantee' is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the 'surety'; the person in respect of whose default the guarantee is given is called the 'principal debtor' and the person to whom the guarantee is given is called the 'creditor'. A guarantee may be either oral or written."
19. Bank guarantee constitutes an agreement between the banker and the principal, albeit, at the instance of the promisor. When a contract of guarantee was sought to be invoked, it was primarily for the bank to plead a case of fraud and not for a promisor to set up a case of breach of contract.
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(Emphasis supplied by us).
Therefore, the nature of allegation of fraud pleaded in the application is insufficient to resist a valid invocation of bank-guarantee.
In the case of U.P. Cooperative Federation Ltd.(supra), relied upon by both the parties, the Supreme Court pointed out that in this type of a dispute, where an irrevocable commitment either in the form of confirmed bank-guarantee or irrevocable letter of credit is sought to be enforced, the Court should not stand in the way except in case of fraud or in case of apprehension of irretrievable injustice have been made out. By taking aid of such observation, Mr. Abhrojit Mitra tried to convince us that we should grant injunction on those grounds. We have already discussed that in order to overcome enforcement of an unconditional bank-guarantee what should be the nature of fraud and arrived at the conclusion that the fraud pleaded in this case does not come within its purview. Similarly, the question of irretrievable injustice will not arise here for the plain reason that, in the suit, the plaintiffs have already claimed damages to the extent of Rs.1 crore and the money that has been sought to be realised by enforcement of the bank-guarantee is admittedly the one supplied by the Respondent No.1 itself and not the money of the appellants. If in the suit, their claim is established, they will get a decree and then a right to the said amount will accrue, but at this stage before adjudication on merit on the question of entitlement, the plaintiffs are not legally entitled to claim that amount of money to be their own simply on the basis of their allegations. 23
In the case of Omega Shelters Pvt. Ltd. vs. Unit Construction (supra), relied upon by the learned Advocate for the appellant, in the bank-guarantee, the following undertaking was given by the Bank:
"We, the Bank, do hereby undertake to pay the amounts due and payable under this guarantee without any demur, merely on a demand from the employer stating that the amount clamed is due by way of loss or damage caused to or would be caused to or suffered by the employer by reason of any breach by the contractor(s) of any of the terms and conditions contained in the said Agreement or by reasons of the contractor's failure to perform the said Agreement. Any such demand made on the Bank shall be conclusive as regards the amount due and payable by the Bank under this guarantee."
However, in the letter invoking the bank-guarantee, the following statements were made:
"Since the applicants M/s. Unit Construction Company Private Limited has not extended the guarantee as requested by us, we hereby give notice for invocation of the said bank-guarantee. Therefore, please invoke the bank- guarantee and arrange to remit the proceeds to us in our bank account No:141150310875059 with Tamilnad Mercantile Bank Ltd., Secenderabad Branch."
In such circumstances, a Division Bench of this Court held that the invocation was not in tune with the condition of invocation as mentioned in the 24 undertaking as mere non-renewal of the guarantee was not a ground of invocation. We fail to appreciate how the said decision can be of any help to the appellants, when in this case, the invocation is in conformity with the terms.
We are also not impressed by the alternative case made out in the application for attachment before judgement (although not pressed before us) with a prayer to direct the Respondent No.1 to give security of the amount. On the basis of a vague allegation that the Respondent No.1 was running in loss and was financially not well off without giving any particulars thereof, the learned Trial Judge rightly did not feel the necessity of calling for affidavit from the Respondent No.1 for controverting such indistinct allegation. The averments so made in application have failed to make out even the prima facie case of attachment before judgement as pointed out by this Court in the well-known case of Premraj Mundra vs. Md. Manech Gazi reported in AIR 1951 Cal 156 which has been quoted with approval by the Apex Court in various decisions including the recent one in the case of Raman Tech & Process Eng. Co. vs. Solanki Traders reported in (2008) 2 SCC 302.
On consideration of the entire materials on record, we thus find that the learned Single Judge rightly dismissed the application for injunction and in the alternative for attachment before judgment even before filing of affidavit by the respondent No.1. We find no reason to interfere with the just discretion exercised by the learned Trial Judge and consequently, this appeal is dismissed. 25
In the facts and circumstances, there will be, however, no order as to costs.
Interim order granted earlier in this appeal stands vacated.
(Bhaskar Bhattacharya, J.) I agree.
(Mohit S. Shah, CJ.)