Delhi District Court
In The Matter vs M/S Hi Tech Gears Ltd on 23 March, 2007
(1)
IN THE COURT OF PAWAN KUMAR JAIN
ADDITIONAL DISTRICT JUDGE, FAST TRACK COURT, DELHI
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Old Suit No. : 1163/98
New Suit No. : 12/07
Date of Institution of case : 02.06.98
Date of transfer to this court : 06.01.07
Date of decision : 23.03.07
IN THE MATTER :
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M/s The Saraswati Industrial Syndicate Ltd.
A Company Duly Incorporated under
the Companies Act, 1956,
Proprietor
The Indian Sugar & General
Engineering Corporation
having its registered office at
Yamunanagar
.....Plaintiff
VERSUS
1. M/s Hi Tech Gears Ltd.
A Company duly incorporated
under the Companies Act, 1956
having its registered office at
OSHU House, Lado Sarai,
New Delhi.
2. Mr. Praveen Jain,
(2)
Company Secretary,
M/s Hi Tech Gears Ltd.,
OSHU House, Lado Sarai,
New Delhi.
3. State Bank of Patiala
Sugar Mill Area Branch,
Saharanpur Road,
Yamunanagar,
Haryana.
.......Defendants
`SUIT FOR PERMANENT INJUNCTION
RERERERERERERER
Present: Sh. Jeevesh Nagrath, Ld. Counsel for plaintiff.
Sh. Sandeep Kapoor, Ld. Counsel for the defendant
No.1 & 2 and
Sh. G.L. Sharma, Ld. Counsel for defendant no.3.
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J U D G M E N T
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1. This is a suit for the permanent injunction against the defendants seeking decree with a prayer to restrain the defendant no. 1 and 2 from collecting/recovering the amount of (3) Rs.10,37,500/- or any other amount from defendant no. 3 in pursuance of the bank guarantee dated 01.02.95 and defendant no. 3 be also restrained to encash the bank guarantee in favour of defendant no. 1 and 2.
2. Succinctly, the necessary facts for the adjudication of the present suit are that plaintiff is a company duly incorporated under Companies Act and also a sole proprietor of M/s Indian Sugar and General Engineering Corporation (hereinafter referred as ISGEC) and the present suit has been filed by the duly authorized person. Defendant no.1 is the Company while defendant no. 2 is its Company Secretary and defendant no. 3 is a nationalized bank. It is undisputed fact that defendant no. 1 had placed an order for supply of 630 tonne of Mechanical Press (hereinafter referred as machine) to the plaintiff vide purchase order dated 29.04.92 in the sum of Rs.1,10,00,000/-. As per agreement, the machine was to be supplied by mid-June, 1993. However, machine was supplied only on 22.02.95 vide invoice number 31-33. In pursuance of the terms and conditions of agreement, plaintiff had furnished the performance guarantee for the period of 15 months in favour of defendant no.1 and plaintiff (4) had also furnished a bank guarantee equivalent to 10% of the basic price of the machine i.e amounting to Rs.11,00,000/- for 15 months through defendant No.3 in favour of defendant No.1. However, a meeting was held on 07.09.94 wherein period of performance guarantee was enhanced from 15 months to 27 months. On 03.01.95, another meeting was held between the parties wherein they agreed to reduce the price of machine by Rs. 6.25 lakh. In other words, the price of the machine was reduced from Rs.1.10 crore to Rs. 1,03,75,000/-. The liquidated damages was also fixed 5% of revised value of the machine.
3. It is averred that on 22.02.95, plaintiff had raised three bills bearing no. 31-33 for the sum of Rs.1,20,33,736/- including Excise Duty, Sales Tax etc., and alleged that defendant no.1 had not made the full payment but only paid a sum of Rs.1,15,14,986/- leaving behind a balance of Rs.5,18,750/-. It is further averred that bank guarantee, given by the plaintiff was a conditional bank guarantee and the same would come into force after making full payment for the machine. The liability under the guarantee was limited to Rs.15,56,250/- for the first year up to 30.01.96 and thereafter Rs. 10,37,500/- upto 30.04.97. It is (5) alleged that defendant no.1 had failed to make the balance payment of Rs. 5,18,750/- despite repeated reminders.
It is further averred that before 09.12.95 defendant no.1 had lodged some complaints for the malfunctioning of the machine, which were attended by the plaintiff company. However, after 09.12.95 no complaint was received from the defendant No.1 about the malfunctioning of the machine. It is alleged that defendant no.1 had intended to extract unlawful gains from the plaintiff and with the view to pressurize the plaintiff, defendant no.1 tried to invoke bank guarantee, given for the said machine on account of problems arose in 400 tones hydrolic Press i.e another machine. It is further alleged that the said machine had functioned normally and properly during the period of performance guarantee. It is alleged that defendant no.1 vide letter dated 07.10.96 threatened the plaintiff to invoke the bank guarantee despite the fact that defendant no.1 is not entitled to invoke the bank guarantee as defendant no.1 had not made entire payment and further after 09.12.95 no complaint was lodged about the malfunctioning of the machine. According to the plaintiff, the delay in delivering the machine if any was (6) not on its part but due to the reasons which were beyond its control, thus defendant No.1 was not entitled to adjust liquidated damages of its own from the bills amount. With these averments, plaintiff has filed the present suit.
4. Defendant no. 1 and 2 controverted the claim of the plaintiff by filing their joint written statement wherein defendants took the plea that plaintiff had delivered the machine after 19 months from the agreed date and the said delay remained unexplained and alleged that it was on the part of plaintiff. On the basis of the said delay, plaintiff had agreed to reduce the price of the machine. It is specifically denied that defendant no. 1 was not entitled to claim liquidated damages and further submitted that plaintiff had admitted the liquidated damages @5% on the revised value of the machine i.e Rs. 1,03,75,000/- and the same was deducted from the invoice amount. After deducting the said amount defendant no.1 had made entire balance payment of Rs.76,64,986/- on 17.02.95 and thereafter plaintiff had never demanded the deducted amount, which further proves that defendant No.1 had rightly adjusted the liquidated damages from the invoice amount. (7)
It is further stated that defendant no.1 had sustained financial loss for delay in supplying the machine as defendant no. 1 had taken huge loan from IFCI and paid interest on the loan amount. Further defendant no.1 had also suffered loss of reputation as failed to fulfil its commitments to its customers. It is stated that the bank guarantee, given by the plaintiff through defendant No.3 was unconditional and in fact was a performance guarantee through which plaintiff assured the defendant no.1 about the quality of machine. It is stated that since defendant no. 1 had made entire payment, is entitled to invoke the bank guarantee. It is stated that defendant no.1 had lodged several complaints to the plaintiff after 09.12.95 about malfunctioning of the machine but plaintiff failed to remove the defects and even failed to attend the complaints. It is further alleged that defendant no.3 was in collusion with plaintiff as defendant no. 3 was situated within premises of plaintiff.
5. Defendant no. 3 contested the suit by filing separate written statement wherein it is stated that bank guarantee was conditional and cannot be invoked by defendant no.1 until the (8) plaintiff had received the entire consideration of the machine. It is alleged that plaintiff had informed the bank vide letter dated 30.12.96 that defendant had not made the full price of the machine, thus defendant no.1 was not entitled to invoke the bank guarantee.
6. Plaintiff has filed the replication to the written statement of defendants wherein it has denied the version of defendants and reasserted and reaffirmed the averments made in the plaint.
7. Vide order dated 12.09.2000, following issues were framed :-
(i) Whether the suit of the plaintiff is liable to be stayed as per section 10 of CPC ? OPD
(ii) Whether the suit is barred by section 41 of specific relief Act ?
(iii) Whether the suit is liable to be rejected as per order 7, Rule 11 of CPC ?
(iv) Whether suit is liable to be dismissed for misjoinder of parties ?
(v) Whether suit is properly signed and instituted by properly authorised person ?(9)
(vi) Whether the plaintiff is entitled for the relief claimed ?
(vii) Whether defendant nos. 1 and 2 have paid the entire consideration ?
(viii) Relief.
8. To prove its case, plaintiff has examined the following witnesses :-
PW-1 Sh. Anil Kumar Duggal PW-2 Sh. J.C. Shukla PW-3 Sh. S.K. Pharsi In Counter defendant nos. 1 & 2 have examined the following witnesses :-
DW-1 Sh. Parveen Jain DW-2 Sh. Mukesh Chhadha
1. I have heard ld. Counsel for the plaintiff, ld. Counsels for the defendants, perused the record carefully and gave my thoughtful consideration to their contentions. My issue-wise findings are as under :-
2. ISSUE Nos.1 to 3 & 5 :(10)
The onus to prove the said issues was upon the defendant Nos.1 & 2.
Ld. Counsel for defendant nos. 1 &2 submits that he is not pressing for the said issues. In view of his submission, the said issues are decided against the defendant nos. 1 & 2 and in favour of the plaintiff.
3. ISSUE No.4 The onus to prove the said issue was upon the defendant nos. 1 and 2. Ld. Counsel for plaintiff submits that he is not pressing his claim against defendant no.2. In view of his submission, ld. Counsel for defendant nos. 1 and 2 submits that he is not pressing for the said issue. In view of their submissions the issue is decided accordingly.
4. ISSUE No. 7 :
The onus to prove the said issue was upon the defendant Nos 1 (11) & 2.
Ld. Counsel for the defendant Nos. 1 & 2 sagaciously contended that the plaintiff had agreed to pay liquidated damages at the rate of 5% of the value of machine in case of delay in supplying the machine. It is argued that there was a delay of about 19 months in the delivery of machine. It is vigorously contended that due to the said delay, plaintiff had given the discount of 5 % on the revised price of the machine and after deducting that amount, defendant No.1 had made the entire balance payment to the plaintiff.
5. Ld. Counsel for the plaintiff controverted the said contentions by arguing that plaintiff had not given any rebate towards liquidated damages in the invoice. However, defendant No.1 of its own had made the payment after deducting the liquidated damages at the rate of 5% to the plaintiff. It is argued that merely fact that defendant No.1 had unilaterally deducted the said amount from the invoice amount does not mean that plaintiff had accepted the said deduction. It is vehemently contended that the clause of liquidated damages in the purchase (12) order only enables the defendant No.1 to claim the damages and does not empower him to deduct the said amount of its own. In support of his contention, ld counsel has strongly relied upon the judgment titled Union of India Vs. Raman Iron Foundry reported in (1974) 2 SCC 231.
6. It is undisputed fact that there was a clause of liquidated damages in the contract, which is Ex PW1/D-1. The said clause reads as under:
CLAUSE 28 : LIQUIDATED DAMAGES:-
`In case if delay on the part of ISGEC, in complying to the manufacturing and delivery schedule of the equipment as mentioned in clause 13 above ISGEC will be liable to pay liquidated damages at the rate of 1 % per month subject to a maximum of 5 % of ex-works price`.
7. It is also admitted fact that on 3.1.95, the price of the machine was reduced from Rs.1.10 crore to Rs.103.75 lac and it was further agreed that the liquidated damages of 5 % will be on (13) the revised price. The relevant writing to the said effect is exhibited as Ex. PW1/D-4.
8. The polemical issue arises for adjudication as to whether the said clause is an enabling provision authorizing the defendant No.1 to claim damages or empowered the defendant No.1 to deduct the said amount of its own?
9. The answer to the said complex issue was given in Union of India Vs. Raman Iron Foundry (Supra). The para 11 of the said judgment is relevant and its relevant portion is reproduced as under:
....The claim is admittedly one for damages for breach of the contract between the parties. Now, it is true that the damages which are claimed are liquidated damages under Clause 14, but so far as the law in India is concerned, there is no qualitative difference in the nature of the claim whether it be for liquidated damages or for unliquidated damages. Section 74 of the Indian contract Act eliminates the somewhat elaborate refinements made under the English common law in distinguishing between stipulations in the nature of penalty. Under the common law a genuine pre- estimate of damages by mutual agreement is regarded as a stipulation naming liquidated damages and binding between the parties: a stipulation in a contract in terrorem is a penalty and the Court refuses to enforce it, (14) awarding to the aggrieved party only reasonable compensation. The Indian Legislature has sought to cut across the web of rules and presumptions under the English common law, by enacting a uniform principle applicable to all situations naming amounts to be paid in case of breach, and stipulations by way of penalty, and according to this principle, even if there is a stipulation by way of liquidated damages, a party complaining of breach of contract can recover only reasonable compensation for the injury sustained by him, the stipulated amount being merely the outside limit. It, therefore makes no difference in the present case that the claim of the appellant is for liquidated damages. It stands on the same footing as a claim for unliquidated damages. Now the law is well settled that a claim for unliquidated damages does not give rise to a debt until the liability is adjudicated and damages assessed by a decree or order of a Court or other adjudicatory authority. When there is a breach of contract, the party who commits the breach does not eo instanti incur any pecuniary obligation, nor does the party complaining of the breach becomes entitled to a debt due from the other party. The only right which the party aggrieved by the breach of the contract has is the right to sue for damages. ` ".......Chagla, C.J. In the last mentioned case, stated the law in these terms:
In my opinion it would not be true to say that a person who commits a breach of the contract incurs any pecuniary liability, nor would it be true to say that the other party to the contract who complains of the breach has any amount due to him from the other party.
As already stated, the only right which he has is the right to go to a Court of law and recover damages. Now, damages are the compensation which a Court of law gives to a party for the injury which he has sustained. But, and this is most important to note, he does not get damages or compensation by reason of any (15) existing obligation on the part of the person who has committed the breach. He gets compensation as a result of the fiat of the Court. Therefore, no pecuniary liability arises till the Court has determined that the party complaining of the breach is entitled to damages. Therefore, when damages are assessed, it would not be true to say that what the Court is doing is ascertaining a pecuniary liability which already existed. The Court in the first place must decide that the defendant is liable and then it proceeds to assess what that liability is. But till that determination there is no liability at all upon the defendant.`
18. The above judgment elucidates that there is no qualitative difference between the liquidated and unliquidated damages except that in the former a particular amount is prescribed being the maximum limit for damages, which can be claimed by the affected party. The claim for liquidated damages also stands on the same footing as a claim for unliquidated damages. It further emerges clearly that a person who commits a breach of contract does not ipso-facto incur pecuniary liability, nor does the party complaining of the breach become entitle to a debt due from the other party. The only right which the aggrieved party has, is the right to sue for damages.
19. In the instant case, there was a clause of liquidated damages in the contract executed between the parties. According (16) to the said clause, plaintiff would be liable to pay liquidated damages to the defendant no.1 @ 1% per month subject to maximum 5% of the ex-works price, in case there was any delay on its part in delivering the machine. No doubt that there was a delay of about 19 months in supplying the machine but that delay was ipso-facto not sufficient to authorise the defendant No.1 to deduct the said amount from the amount of invoices.
As clause 28 of the agreement only empowers the defendant no.1 to sue the plaintiff to claim damages upto 5% of the ex- works price of the machine. It is also pertinent to mention here that 5% is the maximum limit of damages, which defendant no.1 can claim if defendant no.1 succeeds to establish that the delay had occurred in the delivery of machine was on the part of plaintiff. Thus to claim damages, defendant no.1 has to establish in the court of law that delay was on the part of plaintiff and because of the said delay, defendant no.1 had sustained loss. On the basis of loss sustained by the defendant, the quantum of damages would be ascertained by the court of law which cannot be beyond 5% of ex-works price of the machine. The said clause by no imagination empowers the defendant no.1 to deduct the amount equivalent to 5% of ex-works price of the machine of its (17) own towards damages on account of each and every delay irrespective of the fact whether it was on the part of plaintiff or not. It is pertinent to mention here that clause 28 only says that in case of delay on its part, plaintiff would be liable to pay liquidated damages. It nowhere says that defendant No.1 shall be entitled to deduct the amount equivalent to 5% of the ex-works price of machine of its own on each and every delay. Thus, the said clause only creates a right in favour of defendant no.1 to claim damages from the plaintiff. Admittedly, in the present case defendant no.1 had not filed any suit against the plaintiff to claim liquidated damages in pursuance of clause 28 of the contract. In these circumstances, I am of the considered opinion that defendant no. 1 is not entitled to deduct the amount towards liquidated damages of its own from the due amount to the plaintiff.
20. The next conundrum issue is as to whether defendant No.1 had made the entire payment of the machine to the plaintiff or not ?
21. Ld. Counsel for the the defendant No.1 has relied (18) upon the letter dated 17.2.95, which is Ex. PW1/D-5 through which the balance payment of Rs. 76,64,986/- was paid through cheque. It is manifested from the said letter that before making the said payment, defendant No.1 had deducted Rs. 5,18,750/- towards liquidated damages at the rate of 5% of the ex-works price of machine i.e. Rs. 103.75 lac on account of abnormal delay in delivering the machine. The said letter even does not suggest that before deducting the said amount, defendant No.1 ever sought the consent of plaintiff. On the contrary, it emerges from the said letter that the said amount was deducted by the defendant No.1 unilaterally as it has been mentioned therein that we (defendant No.1) had deducted the said amount. It is admitted by plaintiff that the cheque of Rs. 76,64,986/- was received alongwith the said letter but plaintiff never admitted that the same was accepted as full and final payment of the machine. Ld. Counsel for the defendant No.1 & 2 has relied upon the endorsement mark A on Ex PW1/D-5. The said endorsement only proves that the cheque of the said amount was received. Except that there is nothing mentioned therein, which may prove that the said amount was received as full and final payment. Thus, the said letter is not helpful to the defendant (19) No.1 to establish that the defendant No.1 had made the entire payment of the machine to the plaintiff.
22. Ld. Counsel for defendant No.1 further relied upon the letter dated 24.5.96 and 23.5.96 which are Ex PW1/D-7 and PW1/D-8 respectively and argued that in the said letters, plaintiff had demanded only balance payment of Rs. 69,136/-. Ld. Counsel for the plaintiff refuted the said contention by arguing that merely fact that a amount of Rs. 69,136/- was demanded in the said letters does not mean that plaintiff had accepted the unauthorized deduction from the due amount. It is undisputed fact between the parties that the amount of Rs. 69,136/- mentioned in the said letters did not pertain to the price of the machine but it pertained to some repair charges. Thus, merely fact that the balance amount of Rs. 5,18,750/- was not mentioned in the said letters does not prove that plaintiff had accepted the said deduction.
23. Further letter Ex PW1/D-5 manifests that the same was written to the plaintiff on the basis of proforma invoices dated 16.2.95. On the basis of said proforma invoice, defendant no.1 (20) had deducted the amount of Rs.5,18,750/- from the due amount. It is undisputed fact that the invoices were raised by the plaintiff on 22.2.95, which are Ex PW3/1 to PW3/3 and in the said invoices the amount of Rs. 5,18,750/- had been shown as outstanding amount. Thus, it cannot be said that plaintiff had not demanded the said amount.
24. Further DW2 in his cross examination deposed that his senior Mr. Bhargav had given instruction to him to prepare the cheque after deducting Rs. 5,18,750/- as a discount. He further deposed that he did not know on what basis liquidated damages were calculated. Thus his testimony does not prove that plaintiff had ever permitted the defendant No.1 to deduct the said amount towards liquidated damages. Similarly, DW1 in his testimony nowhere deposed that the said amount was deducted with the consent of plaintiff. As already discussed that merely there was a clause of liquidated damages in the contract does not empower the defendant No.1 to deduct the said amount of it own from the due amount. The said clause only creates a right in favour of defendant No.1 to sue the plaintiff to claim the said damages. (21)
25. It is admitted fact that the machine in question was supplied vide invoices which are Ex. PW3/1 to PW3/3 dated 22.2.95. It is admitted case of the defendant No.1 that a C-Form, which is Ex PW3/4 was issued on 3.10.96. On perusal of the said C-Form, it becomes crystal clear that the same was issued for the sum of Rs. 1,15,70,900/- i.e the total amount of said invoices. Neither from the said invoices nor from the said C- Form, it is proved that plaintiff had given the rebate to the defendant No.1 on account of liquidated damages as claimed by the defendant No.1. Merely fact that defendant No.1 had made the payment after deducting the liquidated damages of its own does not prove that plaintiff had given its consent for the same. Needless to say that the statute has provided the period of three years to claim the balance amount and in the present case, the invoices were raised on 22.2.95. Thus, the plaintiff had a right to claim the balance amount within the period stipulated by the statute i.e. three years for the recovery of the balance amount. From the testimony of witnesses examined by the defendant nos.1 & 2, it is proved that the payment was made after deducting 5% towards liquidated damages amounting Rs. 5,18,750/- of its own. In these circumstances, it cannot be said (22) that defendant No.1 had paid the entire consideration of the machine to the plaintiff.
26. Pondering the above discussions, I am of the considered opinion that defendant No.1 was not entitled to deduct Rs.5,18,750/- towards liquidated damages of his own on the basis of clause 28 of the contract. Since the defendant No.1 had not paid the amount of Rs. 5,18,750/-, thus defendant No.1 has not paid the entire consideration of the machine as per invoices to the plaintiff. Accordingly, I decide this issue against defendant No.1 & 2 and in favour of plaintiff.
27. ISSUE NO. 6 :
The onus to prove the said issue was upon the plaintiff.
Ld. Counsel for the plaintiff sagaciously contended that the bank guarantee in question was a conditional guarantee, thus defendant No.1 was duty bound to fulfill the mandatory condition before invoking the bank guarantee. Ld. Counsel for plaintiff vehemently argued that the bank guarantee is an (23) independent contract between the bank and beneficiary and parties to the guarantee were bound by the terms and conditions mentioned therein. The pre-condition to invoke the bank guarantee in the instant case was to make the full payment of the machine to the plaintiff. As defendant No.1 had not paid the balance amount of Rs. 5,18,750/-, defendant No.1 was not entitled to invoke the bank guarantee. In support of his contention Ld. Counsel has relied upon the judgment Hindustan Construction Company Limited Vs. State of Bihar & Others reported in (1999) 8 SCC 436 and Lloyds Steel Industries Limited Vs. Indian Oil Corporation Limited & Others reported in AIR 1999, Delhi 248.
28. Ld. Counsel for the defendant No.1 & 2 vigorously countered the said contentions by arguing that the bank guarantee was unconditional and infact was a performance guarantee, thus defendant No.3 is under legal obligation to honour the said guarantee. It is contended that only in two circumstances bank can be restrained to honour the guarantee, firstly if there is any fraud of which beneficiary seeks to take (24) advantage and secondly where the encashment of guarantee would result in irretrievable injury to one of the parties. It is contended that in the present case, neither of ground is available to the plaintiff. In support of his contentions, Ld. Counsel has cited number of judgments but strongly relied upon the judgment U.P. State Sugar Corporation Vs. Sumac International Limited (1997) 4 Comp. L J 38 (SC), Delkon India Pvt. Ltd. Vs. B.H.E.L (1998) 1 Comp. LJ 504 Delhi, Hindustan Steel Works Construction Ltd. Vs. Tara Pur & Company & Others reported in (1977) 3 Comp. L J 48 ( SC), ITC Ltd. Vs. Debts Recovery appellant tribunal & others (1997) 5 comp. LJ 1 (SC), Lloyd Steel Industries Limited (Supra). Ld. Counsel for defendant no.3 contended that bank was under no obligation to honour the bank guarantee as defendant no.1 failed to fulfill its mandatory conditions to invoke the same.
29. Admittedly, in pursuance of the clause 27 "Performance Guarantee" of the contract Ex.PW1/D-1, plaintiff had furnished the bank guarantee, which is Ex.PW2/6 in favour of defendant no.1 through defendant no.3. The relevant para of the said bank (25) guarantee reads as under :
"Notwithstanding anything stated herein-above this guarantee shall come into force after the receipt of full payment for the press by ISGEC from you and our liability under this guarantee is a financial liability limited to Rs.15,56,250/- (Rupees Fifteen Lacs Fifty Six Thousand Two Hundred Fifty only) for the 1st year i.e upto 30th January, 1996 and thereafter for Rs.10,37,500/- (Rupees Ten Lacs Thirty Severn Thousand Five Hundred Only) upto 30th April, 1997 unless extended."
30. It is also undisputed fact that defendant no.1 had invoked the bank guarantee vide letter dated 14.12.96, which is Ex.P-6. Relevant portion of the said letter is re-produced as under :-
"That the company has made full payment against ISGEC Bill dated 16.02.95 vide cheque No.405558 dated 17.02.95 for Rs.76,64,984/- (Rupees Seventy Six lacs sixty four thousands nine hundreds eighty four only)."
31. The contentious issue in the present case is as to whether the said bank guarantee was conditional or unconditional ? Though ld. Counsels for both the parties have cited numerous judgments on the law relating to the bank guarantee yet it will not be appropriate to mention all of them as the law relating to enforcement of bank guarantee is well settled (26) by the catena of judgments of the Supreme Court and our own High Court. Referring all the cited judgmens would unnecessary add some few more pages in this judgment.
32. In case Hindustan Construction Company Ltd. Vs State of Bihar and others (Supra), it was held in para 9 :
"What is important, therefore, is that the bank guarantee should be in unequivocal terms, unconditional and recite that the amount would be paid without demur or objection and irrespective of any dispute that might have cropped up or might have been pending between the beneficiary under the bank guarantee or the person on whose behalf the guarantee was furnished. The terms of the bank guarantee are, therefore, extremely material. Since the bank guarantee represents an independent contract between the bank and the beneficiary, both the parties would be bound by the terms thereof. The invocation, therefore, will have to be in accordance with the terms of the bank guarantee, or else, the invocation itself would be bad."
Similar view was taken in other cases relied upon by both the parties. As the case Lloyds Steel Industries Ltd. (Supra) was relied upon by both the parties, the relevant para 24 of the said judgment is reproduced as under :-
"There is another side of the picture. It is a well recognised principle of Civil Jurisprudence that a contract of guarantee by a bank in favour of the (27) beneficiary is an independent contract in between the bank and said beneficiary and the said contract can always be enforced by the beneficiary by invoking the said bank guarantee at any time during the subsistence of the contract of guarantee, whenever the beneficiary thinks it proper to do so. While observing so this Court is not oblivious of the fact that the contract is to be enforced of course as per the terms of the contract. In case the guarantee in question is a conditional one then the said conditions and stipulations must be fulfilled before the contract of guarantee is given effect to. On the other hand, if the bank guarantee is unconditional and the banker has promised to pay a stipulated amount without any demur and protest the bank would be failing in its duty in not paying the said amount when the beneficiary makes a demand for the same. Such a contract is in no way influenced by the primary contract i.e., by dealings in between the principal debtor and contractor. The bank can avoid the said contract only when it is shown that the said contract of guarantee was secured by practising fraud on the bank. The other condition when the said contract cannot be implemented and given effect to would be only when it is shown that ti would be a case of irretrievable injustice or a case of special equities .................."
33. From the above judgments, it becomes explicitly clear that the bank guarantee is an independent contract between the beneficiary and the bank and same can always be enforced by the beneficiary in accordance with terms and conditions of the guarantee at any time during the subsistence of the said contract. As it is an independent contract, both the parties would be bound by the terms and conditions mentioned therein. (28)
34. In the light of the aforesaid law, the fact of the present case will be analysed to find out whether it was a conditional guarantee or unconditional. Bank guarantee Ex.PW2/6 clearly states that the said guarantee will come into force after the receipt of full payment for the press by ISGEC(plaintiff) from you (defendant no.1). This clearly proves that the receipt of full payment of the machine by the plaintiff from defendant no.1 was a pre-condition to invoke the bank guarantee. Even this fact is also admitted by the defendant no.1 in his letter, which is Ex.P-6 through which defendant no.1 had invoked the bank guarantee as in the said letter defendant categorically mentioned therein that defendant no.1 had made the full payment to the plaintiff company. Thus, it is evident that making of the full payment was mandatory condition to invoke the bank guarantee. In these circumstances, I am of the considered opinion that the contention of ld. Counsel for defendant no.1 to the extent that it was unconditional is without any substance. On the contrary, the said bank guarantee was conditional and defendant no.1 was duty bound to fulfill the said condition before invoking the bank guarantee. As already discussed that defendant no.1 had not paid (29) the full consideration of the machine to the plaintiff as defendant no.1 had deducted the amount of Rs.5,18,750/- from the due amount without the consent of the plaintiff. Thus, it cannot be said that defendant no.1 had made the full payment to the plaintiff at the time of invoking the guarantee in question.
35. In case Hindustan Construction Company Ltd. (Supra). It was held that if guarantee was furnished to the Chief Engineer, it cannot be invoked by Executive Engineer as there was nothing in the guarantee which may prove that Chief Engineer includes Executive Engineer. The relevant para 21 of judgment reads as under :
"As pointed out above, bank guarantee constitutes a separate, distinct and independent contract. This contract is between the Bank and the defendants. It is independent of the main contract between HCCL and the defendants. Since the bank guarantee was furnished to the Chief Engineer and there is no definition of "Chief Engineer" in the bank guarantee nor is it provided therein that "Chief Engineer" would also include Executive Engineer, the bank guarantee could be invoked by none except the Chief Engineer. The invocation was thus wholly wrong and the Bank was under no obligation to pay the amount covered by the "performance guarantee" to the Executive Engineer.(30)
36. In the instant case, the guarantee would come into force only if defendant no.1 had made the full payment for the machine to the plaintiff. As in this case, defendant no.1 failed to make the entire payment of the machine to the plaintiff, thus in my opinion bank i.e. defendant no.3 was under no obligation to honour the bank guarantee.
37. Mulling over the above discussions, I am of the considered opinion that defendant no.3 was not liable to honour the bank guarantee Ex.PW2/6 as defendant no.1 failed to fulfill the mandatory condition to invoke the said guarantee. Thus, plaintiff is entitled for the relief of permanent injunction. Accordingly, I decide this issue in favour of the plaintiff and against the defendants.
38. RELIEF :
In view of my findings on the issue Nos.6 and 7, a decree of permanent injunction is passed in favour of plaintiff and against defendant no.1 restraining the defendant no.1 from collecting/recovering the amount of Rs.10,37,500/- from (31) defendant no.3 in pursuance of the bank guarantee dated 01.02.95, which is Ex.PW2/6 and defendant no.3 is also restrained from encashing the said bank guarantee in pursuance of the invocation letter dated 14.12.96, which is Ex.P-6. No order as to cost. Decreesheet be prepared accordingly. File be consigned to record room.
Announced in the open court on this 23rd day of March, 2007 (Pawan Kumar Jain) Additional District Judge Fast Track Court, Delhi