Calcutta High Court
Hindustan Fertilizer Corporation Ltd vs Tata Chemicals Ltd on 23 July, 2010
Author: Bhaskar Bhattacharya
Bench: Bhaskar Bhattacharya
1
IN THE HIGH COURT AT CALCUTTA
Civil Appellate Constitutional Jurisdiction
(Original Side)
Present:
The Hon'ble Mr. Justice Bhaskar Bhattacharya
And
The Hon'ble Mr. Justice Prabhat Kumat Dey
G.A. No.2571 of 2007
A.P.O. No.352 of 2007
C.S. No.336 of 2004
Hindustan Fertilizer Corporation Ltd.
Versus
Tata Chemicals Ltd.
For the Appellant: Mr. Sabyasachi Chowdhury,
Mr. Somen Das.
For the Respondent: Mr. Aninda Mitra,
Mr. Abhrajit Mitra,
Mr. Debasis Kundu,
Mr. S. Roychowdhury,
Mr. Dilip Kumar Ghosh,
Mr. S. Chatterjee.
For the Citi Bank: Mr. J. B. Panda.
Heard On: 14.06.2010.
Judgment on: 23rd July, 2010.
Bhaskar Bhattacharya, J.:
This appeal is at the instance of a defendant No.1 in a suit for declaration and injunction and is directed against order dated 11th May, 2007 passed by a learned Single Judge of this Court by which His Lordship disposed of an application for temporary injunction restraining the appellant from invoking the 2 Bank-Guarantee mentioned in the application on condition that the plaintiff should go on renewing the Bank-Guarantee.
Being dissatisfied, the defendant No.1 has come up with the present appeal.
The plaintiff-respondent No.1 (TATA Chemicals Ltd.) filed a suit in the Original Side of this Court against the appellant and the respondent No.2, the Bank, thereby praying for the following relief:
"a) Declaration that the said letter of invocation of the Bank Guarantee by the respondent No.1 as communicated by the respondent No.2 through the E-mail dated 22nd day of December, 2004 be adjudged null and void and/or the same be cancelled and/or rescinded;
b) Perpetual injunction restraining the respondents or their agents, servants and/or assigns from giving any or further effect to the letter of invocation of the Bank Guarantee by the respondent No.1 as communicated by the respondent No.2 through the E-mail dated 22nd day of December, 2004 or from relying thereon or seeking payment thereunder;
c) Perpetual injunction restraining the respondent No.1 or its agents, servants and/or assigns from seeking or obtaining payment under the said letter of invocation of the Bank Guarantee by the respondent No.1 as communicated by the respondent No.2 through the E-mail dated 22nd day of December, 2004;
d) Perpetual injunction restraining the respondents, their servants, or agents and/or assigns from invoking and/or encashing the said Bank Guarantee being No.5564141502 dated 20th May, 2004;
e) Attachment;3
f) Receiver;
g) Costs;
h) Further or either reliefs."
The case made out by the respondent No.1 of this appeal may be summed up thus:
a) The M/s. Hind Lever Chemicals Limited (predecessor in interest of the respondent no. 1) had entered into an agreement dated 29th April, 2003 with the Hindustan Fertilizer Corporation Limited for decommissioning of an Ammonia Storage Tank of the Fertilizer Corporation of India.
b) In terms of the said agreement, M/s. Hind Lever Chemical Limited had executed a Bank Guarantee for a sum of Rs.1 crore in favour of Fertilizer Corporation of India through the office of the respondent No.2, the Bank, at Kolkata.
c) On 26th and 27th May, 2004 there was review on the progress of the work of decommissioning of the Ammonia Storage Tank by the Hind Lever Chemicals Ltd. at the instance of the Fertilizer Corporation of India. In the said meeting, it was decided between the parties that Hind Lever Chemicals Ltd. should release Rs.20 lakh in favour of Hindustan Fertilizer Chemical Ltd. immediately to release the payment of the retainers engaged by M/s. Projects and Development India Ltd., a consultancy firm and to release further progressive 4 payment to the said firm. Thereafter, that the said Hind Lever Chemical Ltd. should submit a Bank Guarantee of Rs.80 lakh and Hindustan Fertilizer Chemical Ltd. should return the Bank Guarantee of Rs.1 crore after the receipt of Rs.20 lakh from Hind Lever Chemical Ltd. ("HLCL").
d) As per the Bank Guarantee, the final apportionment of decommissioning expenses as per the agreement had to be done on the termination of agreement based on actual amount of ammonia handled. One of the terms and conditions of the Bank Guarantee required that the actual cost of decommissioning had to be determined mutually between the HLCL and Fertilizer Corporation of India. The condition of invocation of the Bank Guarantee was that there must be a demand in writing to be lodged by Fertilize Corporation of India three months prior to expiry of the Bank Guarantee i.e. on or before 30th September, 2004 failing which, all the figures under the guarantee would be forfeited and HLCL would be released and discharged from all liabilities thereunder.
e) Due to utter surprise of the plaintiff, the Fertilizer Corporation had raised an outstanding bill of Rs.91,53,125/- against the plaintiff which was contrary to the agreement arrived between HLCL and the Fertilizer Corporation.5
f) After the receipt of the said demand, the plaintiff had written a letter to the Chairman and Managing Director of the Fertilizer Corporation disputing the said bill raised.
g) The plaintiff had received a communication through e-mail dated 22nd December, 2004 from the defendant no.2, the Bank, whereby the Bank had informed the plaintiff that the defendant had sought invocation of the Bank Guarantee and called upon the plaintiff to furnish its response within 7 days failing which the defendant No.2, the Bank, would honour the said Bank Guarantee.
h) Upon receipt of the said e-mail, the plaintiff wrote a letter at its Bombay Office denying their liability in the event of invocation of the said Bank Guarantee by the defendant No.1 inasmuch as the requirements of invocation of the Bank Guarantee were not fulfilled by the Fertilizer Corporation and thus, requested the Bank to desist from honouring any letter of invocation.
i) Since the plaintiff did not get any response either from the Fertilizer Corporation or from the Bank, on 29th December, 2004 the plaintiff sent a legal notice to both the defendants calling upon not to take any step for invocation of the Bank Guarantee.
j) Despite the aforesaid demand, the Fertilizer Corporation has sought to invoke the Bank Guarantee without any notice to the plaintiff as 6 required under the terms of the guarantee and the Bank having threatened the plaintiff to honour the said invocation, the suit was filed.
On the selfsame allegations contained in the plaint of the suit, the plaintiff filed an application for temporary injunction restraining the Bank from invoking the Bank Guarantee.
The application for injunction was contested by the Fertilizer Corporation of India thereby denying the material allegations made in the application and according to the defendant No.1, the Bank-Guarantee being unconditional and the terms of the invocation having been complied with, there was no scope of granting any injunction restraining invocation of the Bank-Guarantee.
As indicated earlier, by the order impugned herein, His Lordship was prima facie of the opinion that there was mutual determination as would appear from exchange of correspondence between the parties. Moreover, according to His Lordship, there was doubt as to whether the Bank-Guarantee had been invoked within the time stipulated as mentioned in the first non obstante clause of the Bank-Guarantee. The learned Trial Judge thus granted the order of injunction on condition that the plaintiff would go on renewing the Bank- Guarantee.
7
Being dissatisfied, the defendant No.1 has come up with the present appeal.
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 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. 8
(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).
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. 9
The full text of the guarantee given by the Bank (Respondent No.2) is quoted below:
"Hindustan Fertilizer Corporation Ltd., Madhuban 55, Nehru Place, New Delhi - 110 019.
THIS GUARANTEE is made on the Twentieth day of May 2004, by Citi Bank N.A. having its branch office at Kanaka Building, 41, Chowringhee Road, Kolkata - 700 071 (hereinafter referred to as the "Guarantor" which expression unless repugnant to the context shall include its successors, assigns etc.) in favour of Hindustan Fertilizer Corporation Ltd., a company formed under the Indian Companies Act, 1956, and having its registered office at "Madhuban", 55, Nehru Place, New Delhi - 110 019 (hereinafter referred to as HFCL which expression, unless repugnant to the context shall include is successors, assigns etc.) WHEREAS HFCL has entered into an agreement dated 29th April, 2003, effective from 01.01.2003, (hereinafter referred to as the 'Agreement') with Hind Lever Chemicals Ltd., a company formed under the Indian Companies Act, 1956 and having its registered office at A-5, Phase II, B, Focal Point Rajpura 140 401 (hereinafter referred to as HLCL, which expression, unless repugnant to the context shall include its successors, assigns etc.) for HLCL's factory at Haldia.
And whereas under the terms and conditions of the said Agreement, HLCL has agreed to bear 98.75% of pre total de-commissioning expenditure of HFCL's Ammonia storage tank at HFCL's premises in Haldia. The final apportionment of the de-commissioning expenses, as per the said agreement, will be come on the date of termination of the said agreement, on the basis of the actual Ammonia handled for HFCL and HLCL. For this purpose HLCL agrees to execute this Bank Guarantee 10 for a sum of Rs.80,00,000/- (Rupees eighty lakhs only) in favour of HFCL. HLCL agrees to pay pro-rata the de-commissioning expenses on actual basis which HFCL would be entitled to claim and recover from this Bank Guarantee of Rs.80,00,000/- (Rupees eighty lakhs only). The Bank Guarantee will be valid till 31st December, 2004. Notwithstanding anything contained hereinbefore, HLCL's liability under this guarantee is restricted to Rs.80,00,000/- (Rupees eighty lakhs only). The actual cost of decommissioning will be as determined mutually between HLCL and HFCL in accordance with the terms of the Agreement. Unless, a demand in writing for claim under this guarantee is lodged by HFCL, three months prior to the expiry of this Guarantee, all the figures under this Guarantee will be forfeited and HLCL will be released and discharged from all liabilities therein under.
Notwithstanding anything contained hereinabove, our liability under this guarantee is restricted to Rs.80,00,000/- (Rupees eighty lakhs only). Our guarantee shall remain in force until 31.12.2004. Our liability hereunder is conditional upon your lodging a demand or claim with Citibank N.A. 41, Chowringhee Road, Calcutta - 700 071, on or before 31/12/2004. Unless a demand or claim is lodged with us within the aforesaid time, your rights under the guarantee shall be forfeited and we shall not be liable thereunder.
This Guarantee shall be governed by and construed in accordance with the laws of India. All claims under this Guarantee will be made payable at Citibank N.A., 41, Chowringhee Road, Calcutta -700 071. The Guarantee will be returned to Citi Bank N.A. once the purpose of its issuance has been fulfilled or upon its expiry whichever is earlier.
For CITIBANK N.A. For CITIBANK N.A. 41, Chowringhee Rd, Cal-71. 41, Chowringhee Rd, Cal-71.
Sd/- Sd/-
Authorised Signature Authorised Signature."
11
A plain reading of the abovementioned bank-guarantee indicates that the guarantee has two conditions for invocation. First, a demand should be made by HFCL within three months of its expiry, i.e. by September 30, 2004 and secondly, the demand must be lodged before the bank within December 31, 2004. The Bank has no right to refuse to make payment once those two conditions are satisfied.
In the case before us, it is not the case of the plaintiff that no demand was made within September 30, 2004 but according to it, the said demand was illegal. Similarly, the fact that demand was lodged before the bank within the period mentioned is also admitted.
The learned Single Judge, as it appears from the order impugned has granted injunction on the following reasons:
First, according to the learned Single Judge, the bank-guarantee is not unconditional as there is no indication that the bank will make payment on demand without any demur or objection.
Secondly, according to His Lordship, mutual determination of the amount finally payable is required to be made by the parties in order to invoke the guarantee and that in this case, such fact has not been asserted.
Thirdly, there is doubt as to whether the bank-guarantee has been invoked within the time fixed in the first non-obstinate clause. 12
Lastly, in a non-testamentary document, in case of conflict between two clauses of the document, the former should prevail and thus, in the absence of compliance of the first non-obstinate clause, the second non-obstinate clause cannot be given effect to.
Therefore, the first point that arises for determination is whether the first non obstinate clause can be said to be conditional on mutual determination of the liability.
In order to appreciate the said question, we quote below the said clause over again:
"Notwithstanding anything contained hereinbefore, HFCL's liability under this guarantee is restricted to Rs.80,00,000/- (Rupees eighty lakhs only). The actual cost of decommissioning will be as determined mutually between HLCL and HFCL in accordance with the terms of the Agreement. Unless, a demand in writing for claim under this guarantee is lodged by HFCL, three months prior to the expiry of this Guarantee, all the figures under this Guarantee will be forfeited and HLCL will be released and discharged from all liabilities therein under."
A plain reading of the said clause indicates that it is specifically mentioned that the HFCL's liability under this particular guarantee is limited to Rs.80 lakh only although the actual cost of decommissioning would be determined mutually between the parties in accordance with the terms of the agreement. However, unless demand is made by HFCL three months prior to 13 expiry of the guarantee in question, HLCL would be released from the guarantee. We are not impressed by the reasons assigned by the learned Single Judge that in the absence of any specific phrase "without demur" occurring in the guarantee the same cannot be said to be unconditional. The averment of the bank in the second non-obstante clause of the guarantee to the effect "our liability hereunder is conditional upon your lodging a demand or claim within Citibank N.A. 41, Chowringhee Road, Calcutta - 700 071, on or before 31/12/2004" is sufficient to indicate that mutual determination of the cost of decommissioning is not the condition precedent for invocation but lodging of demand within the period was sufficient.
Therefore, the determination of actual cost of decommissioning is not the condition precedent for invocation of the guarantee. By the first non-obstante clause, it is, however, imperative that the demand must be made by HFCL within September 30, 2004, i.e. three months prior to the expiry of the Guarantee as mentioned in the second non-obstante clause.
With great respect to the learned Single Judge, we are unable to accept the finding of His Lordship that the guarantee was dependant on mutual determination of the actual amount of decommissioning and only thereafter, the bank-guarantee could be invoked for Rs. 80 lakh.
As regards the finding of the learned Single Judge that there is doubt as to whether demand was made by HFCL within September 30, 2004 is also bereft of any substance in view of the letter dated September 27, 2004 demanding Rs. 14 91,53,125/- and threatening invocation of the bank-guarantee which annexed to the affidavit by the defendant. The plaintiff did not dispute that such demand was made. Therefore, the only condition mentioned in the first non-obstinate clause has been complied with by the defendant.
There is no dispute that the guarantee was invoked within December 31, 2004 and thus, the two conditions mentioned in the guarantee have been complied with.
In view of our finding that the bank-guarantee is not dependant on mutual determination of the amount due for decommissioning, the question of conflict between the two clauses of the guarantee pointed out by the learned Single Judge and the consequence thereof in a non-testamentary document loses its relevance.
On consideration of the entire materials on record, we thus find that the learned Single Judge erred in law in holding that the bank-guarantee in question was conditional on mutual determination of the actual amount payable by totally misreading the contents thereof quoted above. The second non-obstante clause in clear terms indicates that the bank is not entitled to refuse payment once demand is made within the time prescribed in the guarantee.
We, therefore, set aside the order impugned and dismiss the application for injunction filed by the plaintiff.15
The appeal is thus allowed.
In the facts and circumstances, there will be, however, no order as to costs.
(Bhaskar Bhattacharya, J.) I agree.
(Prabhat Kumar Dey, J.)