Civil Appeal No 2524 of 1985
From the Judgment and order dated 26111984 of the Rajasthan High Court in SA No 12 of 1976
Shankar Ghosh BP Maheshwari and l3S Dorpura for the Appellant
VM Tarkunde SK Jain Himansu Atrey and Mrs Probha Jain for the Respondent
The Judgment of the Court was delivered by RAY J
This is an appeal by special leave against the judgment and order dated 26th November 1984 in SB Civil Execution Second Appeal No 12 of 1976 whereby the appeal was allowed and respondent was granted one year time to vacate the premises
The facts giving rise to this appeal are as follows The respondent mortgaged the shop belonging to him to the defendant Nos 1 to 11 on 9th May 1950 by a registered mortgage deed
The possession of the premises was given to the 101 mortgagees with right to collect rent from the tenant in payment A of interest on the mortgage amount
the mortgagees let out the premises to the defendant petitioner during the subsistence of mortgage
The respondent filed a suit for redemption of the mortgage and for vacant possession of the said shop against the mortgagees ie the defendant Nos
l to 11
The appellant who was the tenant of the shop was impleaded as party defendant No 12 in the suit
The suit was decreed and the mortgage was redeemed
There was an order for giving vacant possession of the shop by the defendant NOS l to l l to the respondent ie the owner of the shop
In Execution case No 126 of 1975 the tenant appellant filed an application under Section 47 read with Section 151 of the Code of Civil Procedure 1908 stating inter alia that the decree could not be executed and possession of the shop could not be given by the mortgagees to the decree holder respondent as the tenancy of the appellant subsisted and the same had not been terminated under the provisions of the Rajasthan Premises Control of Rent and Eviction Act 1950
This plea was rejected by l the executing court holding inter alia that letting out of the shop to the defendant No 12 by the mortgagees was held to be not a bona fide act made as a person of ordinary prudence in the course of management of the property under Section 76A of Transfer of Property Act and that the relationship of the lessor and lessee could not subsist beyond the mortgagee s interest unless a new relationship was created between the landlord and the tenant appellant
It was aalso held that the termination of the mortagagee s interest put an end to the relationship of landlord and tenant and the provisions of the Rent Control Act could not apply any further
The decree was executable and the appellant had no interest and as such he could not resist the execution of the decree
The application was dismissed
Against this judgment and order the appellant filed an appeal being Civil Appeal No 13 of 197
The said appeal was however
allowed on a finding that the provisions of Section 131 of the Rajasthan Rent Control Act expressly ruled out the operation of the Transfer of Property Act and a person inducted as a tenant on the premises in a lawful manner could not he evicted except in accordance with the provisions of the Act
The decision in Ms Sachalmal Parasram vs Mst
Ratanbai  Ors A I R 1972 SC 637 and The All India Film Corp Ltd and Ors
Sri Raja Gyan Nath  Ors were held to be not applicable to the instant case
The interest of the appellant as a tenant subsists even after redemption of the mortgage until it is terminated in accordance with the provisions of the aforesaid 102 Rajasthan Premises Control of Rent and Eviction Act 1950
The respondent preferred a second Appeal being SB Civil Execution Second Appeal No 12 of 1976
The said appeal was allowed by the High Court relying on the full bench decision of the High Court in 1984 RLR page 709
On the prayer of the appellant one year time was granted on the expiry of which possession at the said premises shall have to be delivered
A written undertaking to that effect had been filed by the appellant in compliance with the directions of the Court The appellant thereafter filed the instant appeal on special leave
The following two questions come up tor consideration in this appeal i whether a tenant of a mortgagee can continue as a tenant after redemption of the mortgage decree until he is evicted from the suit premises in accordance with the provisions of the Rajasthan V Premises Control of Rent and Eviction Act 1950 and ii whether the tenancy created in favour of the appellant can be deemed to be an act of ordinary prudence on the part of the mortgagee in managing the property falling within Section 76A of the Transfer of Property Act
Identical questions fell for consideration in Mahabir Gope and Ors
vs Harbans Narain Singh and Ors
 In this case the mortgagors mortgaged agricultural lands with possession by ijara to the mortgagee to the effect that the mortgagee would cultivate the land and take the crops
The mortgagee during the subsistence of the mortgage leased out the land to a tenant
The mortgage was redeemed on payment of the mortgage debt
The mortgagor on being opposed by the tenant to have the possession of the mortgaged property filed a suit for recovery of the possession of the land
lt ultimately came up before this Court and it was held as follows The general rule is that a person cannot by transfer or otherwise confer a better title on another than he himself has
A mortgagee cannot therefore create an interest in the mortgaged property which will enure beyond the termination of his interest as a mortgagee
Further the mortgagee who takes possession of the mortgaged property must manage it as a person of ordinary prudence would manage it if it were his own and he must not 103 commit any act which is destructive or permanently injurious to the property see section 76 sub clauses a  e of the transfer of Property Act
It follows that he may grant leases not extending beyond the period of the mortgage any leases granted by him must come to an end at redemption
A mortgagee cannot during the subsistence of the mortgage act in a manner detrimental to the mortgagor s interests such as by giving a lease which may enable the tenant to acquire permanent or occupancy rights in the land thereby defeating the mortgagor s right to khas possession it would be an act which would fall within the provisions of Section 76 sub clause e of the Transfer of Property Act
A permissible settlement by a mortgagee in possession with a tenant in the course of prudent management and the springing up of rights in the tenant conferred or created by statute based on the nature of the land and possession for the requisite period is a different matter altogether
It is an exception to the general rule
The tenant cannot be ejected by the mortgagor even after the redemption of the mortgage
He may become an occupancy raiyat in some cases and a non occupancy raiyat in other cases
But the settlement of the tenant by the mortgagee must have been a bona fide one
This exception will not apply in a case where the terms of the mortgage prohibit the mortgagee from making any settlement of tenants on the land either expressly or by necessary implication
 It was held that the settlement was not a bona fide one and a successor of the tenant did not acquire permanent right of tenancy in the demised lands under Bihar Tenancy Act
In Harihar Prasad Singh  Anr
vs Must
Of Munshi Nath Prasad  Ors 1956 SCR l where the mortgage was in respect of agricultural lands this Court held The law is that a person cannot confer on another any right higher than what he himself possess and therefore a lease created by a usufructuary mortgagee would normally terminated on the redemption of the mortgage
Section 76a enacts an exception to this rule
If the lease is one 104 which could have been made by the owner in the course of prudent management it would be binding on the mortgagors notwithstanding that the mortgage has been redeemed
Even in such a case the operation of the lease cannot extend beyond the period for which it was granted
In the present case assuming that the mortgagees had the power under Section 76a of the Transfer of Property Act to continue the lessees under Exhibit 2a as tenants on the lands after the termination of the period fixed therein that would confer on them at best the status of tenants from year to year and not give them the right to continue in possession after the termination of the agricultural year during which the redemption takes place This Court while considering the ambit of provisions of Section 76a of the Transfer of Property Act observed in Asa Ram and Another vs Mst
Ram Kali and Another AIR 1958 SC 183 as follows The law undoubtedly is that no person can transfer property so as to confer on the transferee a title better than what he possesses
Therefore any transfer of the property mortgaged by the mortgagee must cease when the mortgage is redeemed
Now section 76a provides that a mortgagee in possession must manage the property as a person of ordinary prudence would manage it if it were his own
Though on the language of the statute this is an obligation cast on the mortgagee the authorities have held that an agricultural lease created by him would be binding on the mortgagor even though the mortgage has been redeemed provided it is of such a character that a prudent owner of property would enter into it in the usual course of management
This being in the nature of an exception it is for the person who claims the benefit thereof to strictly establish it
 It has been further observed that if there is a prohibition on mortgagee in letting of lands the lease will not be binding on the mortgagors
But where there is no such prohibition the parties will be thrown back on their rights under the Transfer of Property Act and lessees must establish that the lease is binding on the mortgagors under Section 76a of that Act
The act of the mortgagors leasing out the lands to tenants on the terms set out in the kabuliat was held to be neither prudent nor bona fide and as such the lease was not binding on the mortgagors
105 In All India Film Corp Ltd  Ors
vs Sri Raja Gyan Nath  Ors supra the owner of the property in dispute known as Odeon Cinema mortgaged the property with possession to mortgagees
The mortgagor however migrated to Pakistan in 1947
The mortgagees leased out the property to All India Film Corp Ltd with option of yearly renewal for 10 years
The property being an evacuee property the Competent officer after determining the mortgage charge sold the property
The respondent purchased the property but could not get possession as sub tenants claimed benefit of East Punjab Rent Restriction Act 3 of 1949
The purchaser fired a suit for possession of the property from the Head lessee and sub lessee
It was held by this Court The termination of the mortgagee interest terminated the relationship of landlord and tenant and it could not in the circumstances be said to run with the land
There being no landlord and no tenant the provisions of the Rent Restriction Act could not apply any further
Nor could it be said that when the mortgagor cancelled the rent note and authorised the mortgagee to find any other tenant the intention was to allow expressly a tenancy beyond the term of the mortgage
In this view of the matter the decision of the High Court and the Court the below cannot be said to be erroneous Following the above observations this Court in Ms Sachalmal Parasram vs Mst
Ratanoai and Ors supra has observed that tenancy created by the mortgagee in possession does not survive the termination of the mortgagee s interest
After termination of mortgagee s interest the relationship of landlord and tenant does not survive and the claim of protection of Tenancy Act is not available to the tenant inducted by the mortgagee
The lease was also held to be not an act of prudent management
In the case of Om Parkash Garg vs Ganga Sahai  Ors JT 19871 SC 245
In which one of us was a party this Court observed that the lease in question being held to be not an act of prudent management on the part of the mortgagee within the meaning of Section 76a of the transfer of Property Act 1882 the alleged lease could not subsist after termination of the mortgage by passing of the final decree of redemption and the appellant could not take advantage of the act as there was no subsisting lease in his favour
106 On a conspectus of all these decisions we hold that the lease given by mortgagee during the subsistence of the mortgage came to and end on the redemption of the mortgage
It is pertinent to mention that the question whether after termination of mortgagee s interest on redemption of mortgage the lessees can claim the benefit of Rent Act was considered by the Full Bench of Rajasthan High Court in 1984 RLR 709 and the High Court following the decisions of the Supreme Court has answered that Tenant of the mortgagee in possession is not entitled to the protection of Rajasthan Premises Control of Rent and Eviction Act 1950 against the mortgagor after redemption of the mortgage
 We fully agree with this view
There is specific finding by all the courts below in the suit for redemption that the letting out of the premises to the tenant appellant by the mortgagees is not a prudent act done in the ordinary course of the management
This finding being not challenged became final
The mortgagor landlord is entitled to get recovery of possession
We therefore affirm the judgment and order of the High Court and dismiss the appeal
In the facts and circumstances of the case there will be no order as to costs
SL Appeal dismissed


Summary:
 The appellant a State Government enterprise on or about May 17 1983 entered into a contract with the respondent a private limited company for the supply and installation of a vanaspati manufacturing plant at a place in the district of Nainital
The contract bond contemplated guaranteed performance of the work at various stages in accordance with the time schedule prescribed and provided for completion and commissioning of the plant after trial run by May 15 1984
According to the appellant the time was essentially and indisputably the essence of the contract
As per the terms and conditions of the contract bond according to the appellant the respondent was to furnish a performance bank guarantee for Rs165 lakhs and yet another bank guarantee for Rs33 lakhs as security for the monies advanced by the appellant to the respondent for undertaking the work
Both these guarantees as also the contract bond entitled the appellant to invoke them and call for their realisation and encashment on the failure of the respondent to perform the obligations for which the appellant was made the sole judge
It was alleged that the respondent defaulted at various stages and finally failed to complete the work within the stipulated time
The appellant invoked the two guarantees one after the other and thereafter proceeded to have the plant completed etc
According to the appellant the plant could actually be commissioned for commercial production in JulyAugust 1985
The respondent on August 4 1986 filed an application under section 41 of the The Act in the court of the Civil Judge praying for an injunction restraining the appellant from realis 1125 ing and encashing the bank guarantees
The Civil Judge dismissed the application
The respondent filed a revision petition before the High Court which allowed the same holding that the invocation of the performance guarantees was illegal and the contentions of the appellant that the performance guarantees constituted independent and separate contracts between the guarantor bank and the beneficiary and created independent rights liabilities and obligations under the guarantee bonds themselves as being technical pleas
The High Court however directed the respondent to keep alive the bank guarantee during the pendency of the arbitration proceedings
The appellant then moved this Court for relief by special leave
Allowing the appeal The Court  HELD Per Sabyasachi Mukharji J Under the terms agreed to between the parties there is no scope of injunction
The High Court proceeded on the basis that this was not an injunction sought against the bank but against the appellant
But the net effect of the injunction is to restrain the bank from performing the bank guarantee
That cannot be done
One cannot do indirectly what one is not free to do directly
The respondent was not to suffer any injustice which was irretrievable
The respondent can sue the appellant for damages
There cannot be any basis in the case for apprehension that irretrievable damage would be caused if any
His Lordship was of the opinion that this was not a case in which injunction should be granted
An irrevocable commitment either in the form of confirmed bank guarantee or irrevocable letter of credit cannot be interfered with except if a case of fraud or a case of a question of apprehension of irretrievable injustice has been made out
This is the well settled principle of the law in England
This is also the well settled principle of law in India
No fraud and no question of irretrievable injustice was involved in the case
1138C F In order to restrain the operation either of irrevocable letter of credit or of confirmed letter of credit or of bank guarantee there should be a serious dispute and a good prima facie case of fraud and special equities in the form of preventing irretrievable injustice between the parties otherwise the very purpose of bank guarantees would be negatived and the fabric of trading operation would be jeopardised
The commitments of the banks must be honoured free from interference by the courts otherwise trust in commerce internal and international would be irreparably damaged
It is only in exceptional cases that is in 1126 cases of fraud or in cases of irretrievable injustice that the court should interfere
This is not a case where irretrievable injustice would be done by enforcement of the bank guarantee
This is also not a case where a strong prima facie case of fraud in entering into a transaction was made out
The High Court should not have interfered with the bank guarantee
The judgment and order of the High Court set aside
The order of the Civil Judge restored1141A B 1142D H Per K Jagannatha Shetty J concurring The crux of the matter relates to the obligation assumed by the bank under a performance guarantee
1143B Whether the obligation is similar to the one arising under a letter of credit Whether the Court could interfere in regard to such obligation and if so under what circumstances These are the questions raised in the appeal
1143B C The primary question for consideration is whether the High Court was justified in restraining the appellant from invoking the bank guarantees
The basic nature of the case relates to the obligations assumed by the bank under the guarantees given to the appellant
If under the law the bank cannot be prevented by the respondent from honouring the credit guarantees the appellant also cannot be restrained from invoking the guarantees
What applies to the bank must equally apply to the appellant
Therefore the frame of the suit by not impleading the bank cannot make any difference in the position of law
Equally it would be futile to contend that the court was justified in granting the injunction since it has found a prima facie case in favour of the respondent
The question of examining the prima facie case or balance of convenience does not arise if the court cannot interfere with the unconditional commitment made by the bank in the guarantees in question
1144C D 1145A B The modern documentary credit had its origin from letters of credit
The letter of credit has developed over hundreds of years of international trade
It was intended to facilitate the transfer of goods between distant and unfamiliar buyer and seller
It was found difficult for a buyer to pay for goods prior to their delivery
The bank s letter of credit came to bridge this gap
In such transactions the seller beneficiary receives payment from the issuing bank when he presents a demand as per the terms of the documents
The bank must pay if the documents are in order and the terms of credit are satisfied
The bank 1127 however was not allowed to determine whether the seller had actually shipped the goods or whether the goods conformed to the requirements of the contract
Any dispute between the seller and the buyer must be settled between themselves
The Courts however in carving out an exception to this rule of absolute independence held that if there has been a fraud in the transaction the bank could dishonour beneficiary s demand for payment
The Courts have generally permitted dishonour only on the fraud of the beneficiary not the fraud of somebody else
1145C E H 1146A In modern commercial transactions various devices are used to ensure performance by the contracting parties
The traditional letter of credit has taken a new meaning
Stand by letters of credit are also used in business circles
Performance bond and guarantee bond are also devices increasingly adopted in transactions
The Courts have treated ch documents as analogous to letter of credit
l 1148E Whether it is a traditional letter of credit or a new device like performance bond or performance guarantee the obligation of the bank appears to be the same
Since the bank pledges its own credit involving its reputation it has no defence except in the case of fraud
The nature of the fraud that the courts talk about is the fraud of an egregious nature as to vitiate the entire underlying transaction
It is the fraud of the beneficiary not fraud of somebody else
The bank cannot be compelled to honour the credit in such cases
In such cases it would be proper for the bank to ask the buyer to approach the court for an injunction
The court however should not lightly interfere with the operation of irrevocable documentary credit
In order to restrain the operation of irrevocable letter of credit performance bond or guarantee there should be a serious dispute to be tried and there should be a good prima Facie act of fraud 
1149E H 1150A The sound banking system may however require more caution in the issuance of irrevocable documentary credit
It would be for the banks to safeguard themselves by other means and generally not for the courts to come to their rescue with injunctions unless there is established fraud
The appeal must be allowed and the order of the civil judge restored
1150D E Hamzeh Melas  Sons vs British Imex Industries Ltd  Elian and Rabbath Trading as Elian  Rabbath vs Mastas and Mastas  ors 1966 2 Lloyd s List Law Reports 495 RD Harbottle Mercantile Ltd and Another vs Nahonal Westminster 1128 Bank Ltd and Ors 1977 2 All England Law Reports 862 Edward owen Engineering Ltd vs Barclays Bank International Ltd 1978 1 All England Law Reports 976 United City Merchants Investments Ltd  Ors
vs Royal Bank of Canada vs State Bank of India  Ors
AIR 1979 Calcutta 44 State Bank of India v The Economic Trading Co SAA  ors AIR 1975 Calcutta 145 BS Auila Company Pvt Ltd vs Kaluram Mahadeo Prasad  Ors  Union of India  ors
vs Meena Steels Ltd  Another AIR 1985 Allahabad 282 Arul Murugan Traders vs Rashtriya Chemicals  Fertilizers Ltd Bombay and another AIR 1986 Madras 161 Tarapore  Co Madras vs Ms Vo Tractors Export Moscow  Anr   United Commercial Bank vs Bank of India  ors
   Centax India Ltd vs Vinmar Impex Inc and others  United Commercial Bank vs Bank of India  Ors  and Bolivinter oil SA vs Chase Mannettan Bank  Ors
 at 352 referred to