Kerala High Court
Kunjannamma And Ors. vs Kerala Fisheries Corporation And State ... on 18 September, 1985
JUDGMENT K. John Mathew, J.
1. The plaintiffs are the revision petitioners. Plaintiffs' predecessor-in-interest, Late Sri Varghese, entered into an agreement with the first defendant, namely, the Kerala Fisheries Corporation, for hiring a boat for a period of one year. The suit is to restrain the corporation from demanding any payment from the second defendant, the State Bank of Travancore, Cochin Branch, who was the guarantor as per the bank guarantee executed by the second defendant and also for recovering damages of Rs. 4,941 on settlement of accounts. Along with the suit, the plaintiffs filed a petition for temporary injunction restraining the first defendant from invoking the bank guarantee given by the second defendant on behalf of the plaintiffs' predecessor-in-interest. Both the courts below refused to grant the injunction. This civil revision petition is directed against that order.
2. Learned counsel for the plaintiffs referred to the guarantee issued by the second defendant, especially to Clause No. 2 of the guarantee. It was submitted that the demand by the corporation for payment has to be made only if there is a loss or damage caused or suffered by the corporation by reason of any breach of any of the terms and conditions contained in the main agreement of lease. According to the plaintiffs, the boat was not in a seaworthy condition at the time of the lease and later, which could not be noticed before taking delivery. For repairing the boat as well as for replacing spare parts, the predecessor of the plaintiffs had to spend a large amount with the knowledge and consent of the first defendant. So the submission is that the plaintiffs are entitled to adjust such amounts towards the rent due to the first defendant. In paragraph 11 of the plaint, the plaintiffs have given a statement regarding the respective amounts due to the plaintiffs and the amounts due to the corporation. Therefore, according to the plaintiffs, a balance amount of Rs. 4,941 with future interest is due to them. The further submission is that for this reason, the corporation is not entitled to enforce the bank guarantee issued by the second defendant.
3. In Premier Tyres Ltd. v. State Trading Corporation of India Ltd. [1981] 51 Comp Cas 316 (Delhi), and in Banwari Lal Radhe Mohan v. Punjab Cooperative Supply and Marketing Federation Ltd., AIR 1982 Delhi 357, the Delhi High Court has considered the nature of a bank's obligation under a bank guarantee and held that when a party is sought to be injuncted from encashing the bank guarantee, what has to be looked into are the terms of the bank guarantee alone as this contract is a separate and distinct one and is not dependent on the other independent contract. It was also held that no dispute raised under the main agreement can be a reason for non-payment of the amount under the bank guarantee which is an autonomous and independent contract and must have effect according to its own terms. The Supreme Court has considered a similar question in United Commercial Bank v. Bank of India, AIR 1981 SC 1426 ; [1982] 52 Comp Cas 186 (SC), where the Supreme Court has held that a bank issuing or confirming a letter of credit is not concerned with the underlying contract between the buyer and seller, and the same considerations apply to a bank guarantee. Learned counsel for the revision petitioners placed reliance on the following observation of the Supreme Court (at page 206 of 52 Comp Cas):
"Duties of a bank under a letter of credit are created by the document itself, but in any case it has the power and is subject to the limitations which are given or imposed by it, in the absence of the appropriate provisions in the letter of credit."
4. There is no doubt that if any limitations are placed in the bank guarantee itself, they have to be observed. But as far as the plaintiffs here are concerned, they are not really relying on any clause as such. In Clause 2 of the bank guarantee, it is provided that the guarantee shall remain in full force and effect during the period that would be taken for the performance of the agreement and, that it shall continue to be enforce able till all the, dues of the corporation under or, by virtue of the said agreement are fully paid and its claims satisfied or discharged. So much so it cannot be said that the allegations in the plaint to the effect that the first defendant violated a certain Clause of the main agreement, carry be accepted as a ground for restraining the first defendant from enforcing the bank guarantee.
5. The courts below have examined the documents in detail arid they have rejected the petition for injunction. I see no illegality or error of jurisdiction in the orders of the courts below. Therefore, this civil revision petition is without merit and is dismissed. However, there will be a direction to the trial court to try and dispose of the suit itself as expeditiously as possible and, if possible, within one month from the date of receipt of records by it, untrammelled by any observations in the orders on the I.As.
6. Send back the records immediately.