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J U D G M E N T NANAVATI, J.

These two appeals, by special leave, are directed against the Judgment and Order passed by the Andhra Pradesh High Court in Civil Revision Petition No.3865 and 3866 of 1989. The High Court allowed the revision petitions, set aside the common order passed by the Subordinate Judge, Visakhapatnam in O.P. No.456 and 457 of 1988 an passed an order of injunction restraining Hindustan Steelwork Construction Ltd. (the appellant and fox short referred to as HSCL) from encashing the bank guarantees given by Bank of India in its favour at the instance of M/S. Tarapore & Co. (Respondent No.1 and hereinafter referred to as the contractor).

The HSCL awarded a contract to the contractor for construction of civil works in its Visakhapatnam Steel Plant. On 16.3.84 a letter of intent was issued and the formal contract was signed on 25.10.84. It was a lumpsum contract for Rs. 19,21,36,804 and was to be completed on or before 15.11.1985. The contractor was not able to complete the work within the stipulated time and at its request the time for completion of the work was extended till 31.3.87. Even during this extended period the contractor could not complete the work. It appears that some disputes arose between the appellant and the contractor and on 28.8.1986 the contractor appointed an arbitrator and called upon the appellant to appoint its arbitrator for deciding those disputes. Now those disputes are pending before the two arbitrators appointed by the parties. In August, 1988 by mutual agreement the contract work was reduced and the contract price was fixed at Rs.4.5 crores. This reduced work also was not completed within the extended time and at the request of the contractor the time for completing the work was extended till 30.9.1988. As the contractor did not complete the work by that time the HSCL rescinded the contract on 17.10.1988.

In between 30.1.84 and 8.12.87, Bank of India gave 14 guarantees in favour of HSCL at the instance of the contractor. Bank guarantee No.3/21 was furnished on 28.1.84 and 3139 on 21.2.84 for Rs.10 lacs and 40 lacs respectively towards mobilisation advances. Bank a guarantee No.3/58 dated 28.3.84 for Rs.17,04,580 was towards security deposit. Bank guarantee No.6/175 given on 31.7.87, initially for Rs.45 lacs and subsequently reduced to 36,25,000, was to secure the working funds provided by HSCL to the contractor and also for due performance of the contract. Rest of the bank guarantees were furnished on different dates as and when security deposits were released by HSCL. By these bank guarantees, except bank guarantee No.6/175, bank has undertaken to indemnify HSCL against any loss or damage caused to or suffered by it by reason of any breach by the contractor of any term and condition of the contract. It is also stipulated in the bank guarantees that HSCL shall be the sole Judge on the question as to whether the contractor has committed any breach of the contrast and what is the extent of loss or damage. It is further stipulated therein that the decision of HSCL in this behalf shall be treated as final and binding on the bank. By furnishing Bank guarantee 6/175 the bank has undertaken to pay HSCL on demand any amount payable by the contractor without any demur and protest, without any reference to the contractor and such demand by HSCL has to be regarded as conclusive and binding on the bank notwithstanding any difference between the HSCL and the contractor.

The High Court after taking a note of the fact that fraud is not pleaded in this case, went on the examine whether there were special equities or special circumstances justifying granting of an injunction. It then considered the reasons why the courts refuse to grant injunction against encashment of confirmed letter of credit and the case law on the point. Thereafter it referred to Edward Own v. Barclays Bank International, 1978 (1) A.E.R. 976 wherein it is held that performance guarantee stands on the same footing as a confirmed letter of credit and then observed that principles underlying the letter of credit are made applicable in England even in regard to performance guarantees or bonds. It distinguished the decision of this Court in U.P.C.F. Ltd.vs. Singh Consultants and Engineers (P) Ltd., 1988 (1) SCC 174 on the ground that "it is not a case where it was observed that in our country also the performance guarantee should be treated which is like confirmed letter of credit in order to consider whether injunction has to be refused or granted." After noticing that bank guarantees in this case except bank guarantee Nos. 3/21, 3/39 and 6/175 were given towards security deposits only it observed that "Neither or the learned counsels had drawn attention of this court to any decision granting or refusing injunction in regard to a bank guarantee given by way of security deposit to indemnify against any loss or damage caused by breach of the terms and conditions of the contract." It then considered the position of law with respect to liquidated damages in our country and observed that "Hence there cannot be any agreement in regard to the amount that has to be allowed except the upper limit that can be fixed, in case of breach". Relying upon the decision of this Court in Union of India vs. Raman Iron Factory AIR 1974 SC 1265 the High Court held that any term in the agreement that one of the parties shall be the sole judge to quantify the same has to be held as invalid." According to the High Court liability to pay damages would arise only after it is established that there is a breach of the contract and it is for the court or the arbitrator to decide as to who has committed the breach. Till the liability is ascertained, it cannot be said that there is a "debt due or debt owing". On these grounds the High Court rejected the contention raised on behalf of HSCL that it was the sole judge to decide as to whether the contractor has committed a breach of the contract and what is the extent of damage caused to it, It also held that in absence of any determination by the Court or the arbitrator no amount can be said to be payable by the contractor to HSCL by way of damages and, therefore, it will be just and proper to restrain HSCL from enforcing the bank guarantees. It also held that no irretrievable injustice would be caused to HSCL as it can recover damages from the bank and the contractor in case it succeeds in the case and that the interest of HSCL can be safeguarded by directing the contractor to go on extending the bank guarantees till the matter is settled by the arbitrators. The High Court therefore allowed both the revision petitions and by on order of injunction has restrained HSCL from enforcing the bank guarantees, except bank guarantee no. 6/175, till the arbitrators pass an award in its favour. As regards bank guarantee no.6/175 also it has restrained HSCL from encashing the said guarantee till the balance of the amounts advanced together with interest and the value of the material supplied is ascertained. For ascertaining the amount due, the High Court has remanded O.P. 456/88 to the lower court.