Bombay High Court
Gangapur Sahakari Sakhar Karkhana Ltd. vs Prabhakar Engineers Private Ltd. on 21 July, 1992
Equivalent citations: 1992(3)BOMCR556
JUDGMENT M.L. Dudhat, J.
1. Heard both the sides. Rule made returnable forthwith. Heard both the sides.
2. The only point in this writ petition is as to whether both the lower courts were right in granting injunction restraining the petitioner Karkhana from enforcing bank guarantee without demur in the facts and circumstances of this case.
3. The respondent in this case filed the dispute under section 91 before Co-operative Court No. 2 at Pune being Dispute No. 278 of 1990. The respondent is a supplier of sugarcane machinery. The petitioner is a co-operative society manufacturing sugar. The respondent entered into a contract with the petitioner for supplying certain machinery and for erection and commission of the said equipment. It is the case of the respondent that as per the aforesaid contract about 70% equipment was supplied and used by the petitioner factory for crushing season 1988-89. The respondent further contended that on some occasion there was delay in supply of equipment but in fact the delay was on the count of request of the society as the factory building and certain foundation were not ready and also due to financial difficulties of the society. Under the agreement the respondent also furnished bank guarantee of the amount of Rs. 6,62,000/-. It is an admitted position that on different counts under the agreement in all five different bank guarantees were given out of which four bank guarantees are discharged. The dispute is now as regards performance bank guarantee towards the plant given on 27-6-1989 of amount of Rs. 6,62,000/-. In the dispute it was further contended by the disputant that after supplying 70% of equipment during crushing season 1988-89 the remaining 30% equipment was supplied to the factory and except installation of one vertical crystallizer for want of foundation which was not complete on the site.
4. Thereafter on 28-10-1989 the factory commenced the crushing season and on 21-12-1989 the respondent received the certificate of supply of 100% equipment as per the agreement. As per the agreement, according to the respondent, from 6-1-1990 to 20th January, 1990 the petitioner factory crushed sugarcane at the rate of 2000 tonnes per day i.e. the crushing was done as per the agreed optimum capacity of the expanded unit. On 1-6-1990 the petitioner addressed a letter invoking bank guarantee probably on the ground that the equipment not erected completely.
5. The respondent filed the present dispute for a declaration that the bank guarantee dated 16-6-1989 furnished by the respondent through the Union Bank of India, Station Road Branch, Pune, for amount of Rs. 6,62,800/- has lapsed in view of the conditions in the contract. In the said dispute the respondent also prayed for the grant of permanent injunction restraining the petitioner from invoking the bank guarantee for plant performance guarantee.
6. During the pendency of the aforesaid dispute the petitioner also filed an application for interim injunction on the same date on which the dispute was filed i.e. on 3-9-1990. The trial Court by its order dated 10-9-1990 granted ad-interim injunction restraining the petitioner Karkhana from invoking the bank guarantee called plant performance guarantee. The said injunction was thereafter confirmed by the trial Court by its judgment dated 27-11-1990.
7. Against the said interim order passed by the trial Court, the petitioner preferred appeal before the Maharashtra State Co-operative Appellate Court and after hearing both the sides, the Tribunal confirmed the order of the trial Court. However, in the operative part of the order the Tribunal has directed the respondent to furnish fresh bank guarantee of Rs. 35,000/- i.e. being the amount of 5% of the item viz., vertical continuous crystallizer which is already lying in the site of the petitioner Karkhana. With this modification, the Tribunal confirmed the decision that of the trial Court.
8. Shri Naik, learned Counsel for the petitioner, contended that the trial Court as well as the lower appellate Court committed patent error of law by going into the merit and coming to the prima facie conclusion that the respondent-disputant has proved a prima facie case. According to Shri Naik as per the ratio of the Supreme Court in the case of U.P. Co-operative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd., , the lower courts ought not to have granted the injunction by deciding the question of examining the prima facie case or balance of convenience and interfere with unconditional commitment given by the bank in the guarantee in question.
9. Shri Naik further contended that the facts of the case as decided by the Supreme Court and the facts in the present case are more or less the same and, therefore, by applying the test as laid down by the Supreme Court, both the lower courts ought to have rejected the application for grant of injunction filed by the respondent. According to him, since the bank guarantee given by the respondent being an irrevocable commitment either in the form of confirmed bank guarantee cannot be interfered with except in case of fraud or in case of question of apprehension of irretrievable injustice has been made out.
10. Shri Naik also drew my attention to the fact that under the guarantee given by the Union Bank on behalf of the respondent, the guarantee also provided that the petitioner would be the sole judge for deciding whether the respondent had fulfilled the terms of the contract or not and since, according to him, the petitioner has not given clear certificate about the performance covered under the disputed bank guarantee, the lower courts ought not to have granted injunction restraining the petitioner society from enforcing the bank guarantee.
11. On the other hand, Shri Abhay Abhyankar, learned Counsel for the respondent, contended that both the lower courts were right in granting the interim relief of injunction. According to him, the guarantee given by the respondent germinated out of the main agreement and since it is the case of the disputant-respondent that they have performed all the obligations under the contract excepting one on the court of installation of vertical crystallizer as the petitioner failed to provide the foundation for installing the same, the respondent is discharge of the obligations under the contract entered into between the petitioner and the respondent. Therefore, it was contended on behalf of the respondent that since the obligation under the contract entered into between the parties has come to an end by performance, the bank guarantee issued on the basis of the said contract has also come to an end and, therefore, both the lower courts were right in granting interim relief of injunction restraining the petitioner from enforcing the bank guarantee.
12. It is the case of the disputant that an per Clause 8.4 of the agreement, admittedly the respondent completed its obligation under the contract to the satisfaction of the representation mentioned in the agreement and received certificate to that effect and, therefore, obtained the discharge in respect of four bank guarantees out of five. According to him, even in respect of the bank guarantee in question, which is covered under Clause 9(c) of the agreement, the respondent supplied vertical crystallizer which is still lying on the site and could not be installed as the petitioner Karkhana failed to keep foundation required for vertical crystallizer ready for installation. It is contended on behalf of the respondent that from January 1990 the petitioner Karkhana crushed sugarcane at the rate of 2000 tonnes each day between 6-1-1990 to 20-1-1990. To support this claim, the respondent in fact relied upon the daily production report maintained by the petitioner. From the aforesaid report, there was no stoppage or breakdown of equipment supplied by the respondent during this period. Both the courts accepted this position more particularly because the claim of the respondent was based on the daily crushing report maintained by the petitioner Karkhana. The respondent contended that Clause 9(c) is as under :
"9(c) That capacity and efficiency of the expanded plant shall be deemed to have been fulfilled if after one month or thereafter from the start of crushing operations the Expanded Plant works continuously for 10 consecutive days with all the items of the plant and machinery and performance capacities and efficiency as stipulated in the respective groups under Annexure I to VII is achieved on every day of the said 10 consecutive days."
After going through the aforesaid clause in the light of the performance report of the petitioner society it is clear that the respondent has performed its part of the contract and, therefore, is entitled for discharge. It was also contended on behalf of the respondent that sugarcane procurement on the part of the petitioner Karkhana was below 2000 metric tonnes from 20th May, 1990 to 30th May, 1990. The respondent further contended that in such type of contingency Clause 8.5 of the agreement is applicable. Clause 8.5 of the agreement is as under :
"If the purchasers fail to make necessary arrangements including the supply of cane even in the second crushing season after the scheduled date of commissioning, the plant will be deemed to have been taken ovary by the purchasers and the trial performance Guarantee will lapse automatically and the trial will be presumed to have performed in accordance with the standard laid down in the Agreement."
13. Since from 20-5-1990 to 30-5-1990 the petitioner Karkhana procured sugarcane below 2000 metric tonnes, in view of Clause 8.5 of the agreement the bank guarantee given by the petitioner is automatically lapsed as the plant deemed to have taken over by the purchaser Karkhana.
14. After going through the aforesaid factual position, I am of the opinion that both the lower courts were right in coming to the conclusion that the evidence on record is sufficient to show that the respondent has completed its part of the contract and, therefore, the obligation under the contract has come to an end. Admittedly, the bank guarantee was given by the respondent to assure the performance under the contract and since the respondent has fulfilled its obligation under the contract, the contract entered into between the petitioner and the respondent has come to an end and, therefore, even the bank guarantee has also come to an end.
15. Apart from that while modifying the order the Tribunal has also taken it no consideration the fact that vertical continuous crystallizer, though lying in the factory is still not installed because the petitioner could not keep foundation for installation of the same ready. For that purpose the Tribunal has directed the respondent to furnish bank guarantee of Rs. 30,000/- within one month of the said decision and I am told by Shri Abhyankar, learned Counsel for the respondent, that the respondent has already furnished the said bank guarantee as per the order of the Tribunal. According to me, in view of this position there is no need to interfere with the finding of fact given by the trial Court.
16. Now the only question is as to whether the observation made by the Supreme Court in the case of U.P. Co-operative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd., , is applicable in the facts and circumstances of the present case. One distinguishing feature in the present case from the facts of the aforesaid Supreme Court case is the bank guarantee given in the present case is out of the agreement entered into between the petitioner and the respondent. Further in this case it is the case of the respondent that whatever required to be done under the contract for which the guarantee was given has been done by the respondent and, therefore, there is no question of enforcing the bank guarantee. It is true that as to whether the supply by the respondent is proper or not, whether the error in work done as per the contract or not, the decision of the petitioner Karkhana is final on that point but in spite of the foresaid clause since to show that the respondent has performed its part of the contract as per the terms of the contract, the respondent is relying on the document furnished by the petitioner and, therefore, in such facts and circumstances of the case if injunction is not given and the petitioner is allowed to enforce the Bank guarantee, the same will amount to deriving unjust enrichment to the petitioner which the aforesaid Supreme Court case also considered as one of the exceptions to the general rule that no injunction should be given against the irrevocable bank guarantee. In the facts and circumstances of this case, I am of the opinion that the ratio of the Supreme Court case in U.P. Co-operative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd., , is quite distinguishable from the facts and circumstances of this case.
17. In view of this position, I am rejecting this writ petition and confirming the order passed by the lower Court. Rule discharged.
18. Certified copies to be supplied urgently.