ivil Appeal No 3087 of 1991
From the Judgment and Order dated 2311
1990 of the Delhi High Court in FAO OS 123 of 1989
Kapil Sibal DD Thakur Ms Lira Goswamy AK Mahajan AS Chandhoik Ms Meera Chibar and Dinesh Agnani for the appearing parties
414 The Judgment of the Court was delivered by K JAGANNATHA SHETTY J
We grant special leave and proceed to dispose of the appeal
The General Electric Technical Services Company GET SCO  had entered into a contract with Indian Airlines which included inter alia the construction and fabrication of air craft testing centreengine repair centre in Delhi
The GETSCO in turn entered into a contract with Ms Punj Sons P Ltd respondent 1 for getting that work done for Indian Airlines
As per the contract respondent I was required to provide performance bond equal to 30 per cent of the total value of contract price which was to be split up into two performance bonds partly to be released on completion of the project and the balance upon the expiration of the warran ty
The respondent I was also required to furnish a bank guarantee to secure the mobilisation advance of 25 per cent of the contract value
On 28 October 1986 respondent 1 furnished the bank guarantee to secure the mobilisation advance of Rs 18600000
The guarantee was furnished by Hongkong  Shanghai Bank  the Bank  respondent 2
Respondent I instead of furnishing the two performance bonds as agreed upon wrote a letter dated 3 September 1987 as follows  
Sub Jet Engine Test  Repair Centre at Palam Finance September 3 1987 Dear Sir In terms of above contract we have to submit two separate Bonds for Mobilisation advance  performance guarantee  25 and 30 of the Contract value
Bank Guarantee for mobilisation advance has already been submit ted and we have not to submit the Performance Bonds for 30 of the Contract value
Since the amount of Performance Bond shall be progres sively utilised over the contract period in order to reduce Bank charges and marginal money we would like to suggest alternative proposals to meet with your requirements 415 AA
We propose to submit performance guaran tees for 30 of the contract value duly signed by two directors in their personal capacity and countersigned by Punj Sons Pvt Ltd This Performance bond shall include identical terms  conditions as desired in your format
Similar Bond has already been accepted by Ms Hindustan Petroleum Corporation Ltd Bombay for their Bombay Pune Pipeline Project valued at Rs705 crores
Alternatively we would suggest submission of a Composite Bank gurantee where amount vacated by Mobilisation advance shall be utilised by Performance Bank Guarantee amount
This Guarantee shall at any time be valid for equivalent to 30 of the contract value to cover unrecovered mobilisation advance and Performance Guarantee amount of the work certified
We have submitted similar Bonds to a number of our customers to their entire satis faction
May we request you to look into the above arrangement and allow us to submit the above Bond or Composite Bank Guarantee under this Contract
Thanking you and assuring you of our best services at all times  GETSCO has accepted the revised proposal contained in the aforesaid letter
Consequently on 25 January 1988 the Bank furnished a composite bank guarantee for Rs2 1225000
Out of this composite bank guarantee 15 per cent being Rs 10612500 would remain in force until 30 June 1988 and the balance 15 per cent would remain valid till final acceptance certificate ie till 30 June 1989
It seems respondent 1 failed to complete the project within the stipulated time as per contractual specifications despite repeated opportunities to rectify defects and defi ciencies prior to August 1988 and thereafter
GETSCO termi nated respondent 1 s right to continue the project and wrote a letter dated 17 April 1989 to the Bank seeking encashment of the bank guarantee dated 25 January 1988 for Rs 106 12500
On the same day the bank issued a cashier s order No 2605 for Rs 106 12500 in favour of GETSCO
On 18 April 1989 the respondent 1 filed a suit for injunction against GETSCO and the Bank in the High Court and obtained an ex parte injunction at the residence 416 of learned Single Judge restraining the Bank and GETSCO from encashing the bank guarantee
On 11 July 1989 the ex parte injunction was vacated
On the same day respondent 1 preferred an appeal to the Division Bench of the High Court and obtained stay of encashment of he bank guarantee
On 23 November 1990 the Division Bench allowed the appeal set aside the order of learned Single Judge and stayed the encashment of the bank guarantee till the disposal of the respondent s suit
It seems to us that the Division Bench of the High Court has misconstrued the terms of the bank guarantee and the rights and liabilities of the parties thereunder
The first bank guarantee dated 28 October 1986 is in these terms 1
In consideration of General Electric Technical Services co Inc Cincinnati Ohio USA Co Ms PL Jaitly  co IE12 Jhandewalan Extension New Delhi hereinafter called the owner having agreed to grant mobilisation advance of Rs18600000 Rs Eighteen million six hundred thousand only to Ms Punj Sons Pvt Ltd Industrial Area Kalkaji New Delhi 110019 hereinafter called Contractor under the terms and conditions of Tender No HB 040 I made by and between owner and Contractor for Indian Airlines Jet Engine Repair and Test Facilities Phase II Construc tion being undertaken at the Indira Gandhi International Airport New Delhi here in called the Agreement on the production of Bank Guarantee for Rs18600000 Rupees eighteen million six hundred thousand only we Hongkong  Shanghai Banking Corporation 28 Kasturba Gandhi Marg New Delhi 110001 hereinafter called Bank do hereby undertake to pay to the Owner an amount not exceeding Rs 18600000 Rs eighteen million six hundred thousand only against any loss or damage caused to or suffered or would be caused to or suffered by the owner by reason of any breach by the Contractor of the terms and conditions contained in the Agreement
We the Bank do hereby undertake to pay the amount due and payable under this Guarantee with demur merely on demand from the owner stating that the amount claimed is due by way of loss or damage caused to or would be caused to or suffered by the owner by reason of any breach 417 by the Contractor of any of the terms or conditions contained in the Agreement or by reason of the Contractor s failure to perform the Agreement
Any such demand made on the Bank shall be conclusive as regards the amount due and payable by the Bank under this Guarantee
However our liability under this Guarantee shall be restricted to an amount not exceeding Rs18600000 Rupees eighteen million six hundred thousand only
We the Bank further agree that the Guaran tee herein contained shall remain in force and effect during the period that would be taken for the performance of the Agreement and that it shall continue to be enforceable till all the due of the owner under or by virtue of the Agreement have been fully paid and its claims satisfied or discharged or till the owner certifies that the terms and conditions of the Agreement have been tully and properly carried out by the Contractor and accordingly dis charges the Guarantee
Unless a demand or claim under this Guarantee is made on us in writing on or before the date named in the Agreement as the end of the warrantmainte nance period we shall be discharged from all liability under this Guarantee thereafter
We the Bank further agree with the Owner that the owner shall have the fullest liberty without our consent and without affecting in any manner our obligations hereunder to vary any of the terms and conditions of the Agree ment or to extend time of performance by the Contractor from time to time or to postpone for any time or from time to time any of the powers exercisable by the owner against the Contractor and to forbear or enforce any of the terms and conditions relating to the Agreement and we shall not be relieved from our liability by reason of any such variation or extension being granted by the owner or any indulgence by the owner to the Contractor or by any such matter or thing whatsoever which under the law relating to sureties would but for this provision have effect of so relieving us
We the Bank lastly undertake not to revoke this Guarantee during its currency except with the previous consent of the owner in writing
418 Notwithstanding anything stated above our liability under this Guarantee is restricted to a sum of Rs 18600000 Rs eighteen million six hundred thousand only
Our Guar antee shall remain in force until the date named in the Agreement as the end of the warrantmaintenance period
Unless a demand is lodged with us on or before that date 13 day of February 1988 all your rights under the said guarantee shall be forfeited and we shall be relieved and discharged from all liabilities thereafter
 The relevant terms of the second composite bank guarantee dated 25 January 1988 are as follows Bank Guarantee No 86 NDH 918 dt
28101986 for Rs 18600000 favouring Ms General Electric  Technical Services Co Inc Under the instructions from our clients Ms Punj Sons Pvt Ltd M 13 Connaught Place New Delhi 110001 we hereby enhance the value of the above Bank Guarantee upto Rs21225000 Rupees twenty one million two hundred twenty five thousand only being 30 of the revised Lumpsum Contract value of Rs70750000 Rupees seventy million seven hundred fifty thousand only
This Bank Guarantee shall act Composite Bank Guarantee  for Mobilisation Advance and Performance Bond where in Bank Guarantee to the extent of amounts of Mobilisation Advance so recovered shall be utilised towards Two Performance Bonds of 15 of the Contract value each valid upto 30th June 1988 and 30th June 1989 respectively
All the other terms and conditions of the original Guarantee will remain unchanged
We the Hongkong  Shanghai Banking Corpora tion 28 Kastruba Gandhi Marg New Delhi 110001 hereby undertakes not to revoke the Guarantee during the currency except with the previous consent of the General Electric 419 and Technical Services Company Inc Notwithstanding anything contained herein before our liability under this Guarantee is restricted to Rs21225000 Rupees Twenty One Million Two Hundred Twenty five thousand only and the recovery of Mobilisation advance from Running Bills Account will be in accordance with the contract the Guarantee against such amounts of Mobilisation Advance as so recov ered shall be treated towards performance Guarantee with the intent that after recovery of Mobilisation Advance in full the Guarantee shall operate against the full value of Per formance Bond
Out of the said guarantee amount the Bank Guarantee amount of Rs10612500 Rupees ten million six hundred twelve thousand  five hundred only being the 15 of lumpsum value of the contract shall remain in force till the completion of the Project ie upto 30th June 1988 and the Bank Guarantee for the balance amount ie Rs10612500 Rupees ten million six hundred twelve thousand five hundred only being 15 amount shall remain in force till final ac ceptance certificate till 30th June 1989
NOTWITHSTANDING anything contained hereinbe fore our liability under this Guarantee will be restricted to Rs21225000 Rupees twenty one million two hundred twenty five thousands only until 30th June 1988 and will automati cally stand reduced from Rs21225000 to Rs10612500 Rupees ten million six hundred twelve thousand and five hundred only on 30th June 1988 without further reference to you
Our liability will continue only to the extent of the balance amount of Rs10612500 Rupees ten million six hundred twelve thousand and five hundred only after 30th June 1988 and will be conditional upon a claim being filed with us in writing on or before 30th June 1989
Thereafter our liability under this guarantee shall stand extinguished and we shall be relieved and discharged from all liabilities thereunder
 The second bank guarantee with which we are concerned makes a reference to the first guarantee
It states that the guarantee is a composite bank guarantee for mobilisation of advance and performance bond
It further states that all the other terms and conditions of 420 the original Guarantee will remain unchanged
The liability of the Bank shall automatically reduce from Rs21225000 to Rs 106 12500 on 30 June 1988 which will continue even after 30 June 1988 and will be condi tional upon a claim being filed with the Bank in writing on or before 30 June 1989
In the first guarantee the Bank has undertaken to pay to GETSCO the amount guaranteed without any demur merely on demand stating that the amount is due by way of loss or damage caused to or would be caused to or suffered by GETSCO by reason of any breach committed by the respondent on any of the terms or conditions contained in the agreement or by reason of respondent s failure to per form the agreement
It is also provided that any such demand by GETSCO made on the Bank shall be conclusive as regards the amount due and payable by the Bank under the guarantee
The GETSCO has only sought to enforce the bank guarantee for the balance amount of Rs 106 12500 on a complaint that respondent 1 has failed to perform the contract as per the terms and conditions
The Bank has undertaken to pay this sum of money and it is a commitment of the Bank
The Bank must honour its commitment when demand is made
Indeed the Bank was prepared to pay and has in fact issued the Cash ier s order as per demand from GETSCO but the Court has directed the Bank not to pay under the guarantee
The question is whether the Court was justified in restraining the Bank from paying to GETSCO under the bank guarantee at the instance of respondent 1
The law as to the contractual obligations under the bank guarantee has been well settled in a catenae of cases
Almost all such cases have been considered in a recent judgment of this Court in UP Cooperative Federation Ltd vs Singh Consultants and Engineers P Ltd wherein Sabyasachi Mukherji J as he then was observed at 189 that in order to restrain the operation either of irrevocable letter of credit or of confirmed letter of credit or of bank guar antee there should be serious dispute and there should be 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 operations will get jeopardised 
It was further observed that the Bank must honour the bank guarantee free from interference by the Courts
Otherwise trust in commerce internal and interna tional would be irreparably damaged
It is only in excep tional cases that is to say in case of fraud or in case of irretrievable injustice the Court should interfere
In the concurring opinion one of us K Jagannatha Shetty J has observed that whether it is a 421 traditional bond or performance guarantee the obligation of the Bank appears to be the same
If the documentary credits are irrevocable and independent the Bank must pay when demand is made
Since the Bank pledges its own credit in volving its reputation it has no defence except in the case of fraud
The Bank s obligations of course should not be extended to protest the unscrupulous party that is the party who is responsible for the fraud
But the banker must be sure of his ground before declining to pay
The nature of the fraud that the courts talk about is fraud of an egre gious nature as to vitiate the entire underlying transac tion
It is fraud of the beneficiary not the fraud of somebody else
The High Court has observed that failure on the part of GETSCO to make a reference to mobilisation advance in the letter seeking encashment of the bank guarantee would be tantamount to suppression of material facts in the sense that the mobilisation advance was under the contract to be recovered from the running bills
It was further observed that disclosure of such facts would have put the bank to further inquiry as to what was the amount covered by those bills and what was the corresponding amount of the mobilisa tion advance and to what extent the amount covered by the bank guarantee remained payable
In any event the High Court said that GETSCO could not demand full amount of the bank guarantee on 17 April 1989
It seems to us that the High Court has misconstrued the terms of the bank guarantee and the nature of the inter se rights of the parties under the contract
The mobilisation advance is required to be recovered by GETSCO from the running bills submitted by the respondent
If the full mobilisation advance has not been recovered it would be to the advantage of the respondent
Secondly the Bank is not concerned with the outstanding amount payable by GETSCO under the running bills
The right to recover the amount under the running bills has no rele vance to the liability of the Bank under the guarantee
The liability of the Bank remained intact irrespective of the recovery of mobilisation advance or the non payment under the running bills
The failure on the part of GETSCO to specify the remaining mobilisation advance in the letter for encashment of bank guarantee is of little consequence to the liability of the Bank under the guarantee
The demand by GETSCO is under the Bank guarantee and as per the terms thereof
The Bank has to pay and the Bank was willing to pay as per the undertaking
The Bank cannot be interdicted by the Court at the instance of respondent 1 in the absence of fraud or special equities in the form of preventing irre trievable injustice between the parties
422 The High Court in the absence of prima facie case on such matters has committed an error in restraining the Bank from honouring its commitment under the bank guarantee
In the result we allow the appeal set aside the im pugned judgment and order of the High Court
The appellant is entitled to costs in this Court
SLP Civil No of 1991 In CC 13 15391 Since we have set aside the order of the Division Bench of the High Court this Special Leave Petition does not survive and is accordingly dismissed
No costs
VPR Appeal allowed


Summary:
With a view to check transportation of illicit liquor the Police were maintaining a watch and the speeding car driven by the detenu husband of the appellantpetitioner was signalled to stop
Insteadthe detenu accelerated the car and drove straight towards the Police party
They had to jump on to the foot path to save themselves
The detenu hurled abuses and threatened to kill the Police officers
He kept on driving the car recklessly dashed against a pedestrian thereby injuring him
Ultimately the car collided with a stationary taxi and stopped
The Police rushed to apprehend the detenu and two others in the car but they jumped out of the car and escaped
Police seized the motor car and recovered illicit liquor therefrom
A police case was registered against the detenu and two other unknown persons for offences under Sections 307324 read with Section 34 IPC
The detenu made himself scarce and could not be arrested immediately
However after a few days he was arrested and he admitted the incident including his escape
He was produced before the Magistrate and was released on bail on the condition that he should report to the police daily
Since the detenu failed to carry out the condition bail was cancelled and he was taken into custody
The detenu then moved the Sessions Court against the cancellation of his bail which was admitted and he was granted bail
During the investigation of the case Police could record statements 235 from four witnesses who deposed only on condition of anonymity as they feared retaliation from the detenu
The detaining authority on being satisfied that the detenu was likely to indulge in activities prejudicial to the maintenance of public order passed an order of detention and the grounds of detention were served on the detenu
The said order was confirmed by the State Government on the report of the Advisory Board
The wife of the detenu challenged the detention order before the High Court
The High Court having dismissed the Writ Petition she has filed the present appeal by special leave as also a Writ Petition before this Court challenging the detention order passed against her husband
On behalf of the appellantpetitioner it was argued that the activities of the detenu had no impact on the public and therefore could not be said to have disturbed the even tempo of the society and as such his detention for acting in a manner prejudicial to the public order was unjustified
It was further contended that Section 32 of the Maharashtra Prevention of Dangerous Activities of Slumlords Bootleggers and Drug Offenders Act 1981 prohibited the State Government to make an order of detention in the first instance exceeding three months and since in the present case the detention order was for more than three months it was invalid
Dismissing the matters this Court HELD 11
Crime is a revolt against the whole society and an attack on the civilization of the day
Order is the basic need of any organised civilized society and any attempt to disturb that order affects the society and the community
The distinction between breach of law and order  and disturbance of public order  is one of degree and the extent of reach of the activity in question upon the society
In their essential quality the activities which affect law and order and those which disturb public order may not be different but in their potentiality and effect upon even tempo of the society and public tranquility there is a vast difference
In each case therefore the courts have to see the length magnitude and intensity of the questionable activities of a person to find out whether his activities are prejudicial to maintenance of public order or only law and order
244E G 12 Respect for law has to be maintained in the interest of the society and discouragement of a criminal is one of the ways to maintain it
The 236 objectionable activities of a detenu have therefore to be judged in the totality of the circumstance to find out whether those activities have any prejudicial affect on the society as a whole or not
If the society
and not only and individual suffers on account of the questionable activities of a person then those activities are prejudicial to the maintenance of public order and are not merely prejudicial to the maintenance of law and order
An order of detention would be valid if the activities of a detenu affect public order but would not be so where the same affect only the maintenance of law and order245B C Ram Manohar Lohia vs State of Bihar
  Arun Ghosh vs
State of West Bengal  Madhu Limaye vs Ved Murti 19703 SCC 738 Kanu Biswas v State of West Bengal   Ashok Kumar vs Delhi Administration  Subhash Bhandari vs District Magistrate Lucknow   relied on
State of UP vs Hari Shankar Tewari 1987 2SCC 490 Ahmedhussain Shaikhhussain vs Commissioner of Police Ahmedabad  Anr 19894 SCC 751 TDevaki vs Government of Tamil Nadu  Ors
1990 2SCC 456 Referred to 21 The explanation to Section 2a of the Maharashtra Prevention of Dangerous Activities of Slumords Bootleggers and Drug offenders Act 1981 brings into effect a legal fiction as to the adverse affect on public order 
It provides that if any of the activities of a person referred to in clauses  i iii of Section 2a directly or indirectly causes or is calculated to cause any harm danger or alarm or a feeling of insecurity among the general public or any section thereof or a grave or a wide spread danger to life or public health then public order shall be deemed to have been adversely affected
Thus it is the fall out of the activity of the bootlegger  which determine whether public order  has been affected within the meaning of deeming provision or not
This legislative intent has to be kept in view while dealing with detentions under the act
246 B C 22 In the instant case the substance of the grounds on which detention has been ordered is that the detenu is a bootlegger and in furtherance of his activities and to escape from the clutches of law he even tried to run over by his speeding vehicle the police party which tried to signal him to a stop exhorting all the time that he would kill anyone who would come in his way
He continued to drive in a reckless speed and dashed against a pedestrian causing injuries to him where 237 again he had exhorted that anyone who would come in his way would meet his death
Four witnesses A B C D who agreed to give statements to the police on conditions of anonymity clearly stated that they would not depose against the detenu for fear of retaliation as the detenu had threatened to do away with anyone who would depose against him
The evidence of witnesses shows that the detenu was indulging in transporting of illicit liquor and distributing the same in the locality and was keeping arms with him while transporting liquor
The activities of the detenu therefore were not merely bootlegging  but went further to adversely affect the even tempo of the society by creating a feeling of insecurity among those who were likely to depose against him as also the law enforcement agencies
The fear psychosis created by the detenu in the witnesses was aimed at letting the crime go unpunished which has the potential of the society and not merely some individual to suffer
The activities of the detenu therefore squarely fall within the deeming provision enacted in the explanation to Section 2a of the Act
It therefore follows that the activities of the detenu were not merely prejudicial to the maintenance of law and order  but were prejudicial to the maintenance of public order 
246D H 247 A Om Prakash vs Commissioner of Police  Ors 1989 Supp
2 SCC 576 Rashidmiya vs Police Commissioner Ahmedabad  Anr 1989 3 SCC 321 Piyush Kantilal Mehta vs Commissioner of Police Ahmedabad City and Anr 1989 Supp
1 SCC 322 referred to
The maximum period of detention is prescribed under Section 13 of the Act which lays down that a person may be detained in pursuance of any detention order made under the Act which has been confirmed under Section 12 of the Act
Therefore the order of detention in the instant case though it was for a period of more than three months is not vitiated since the order is in conformity with the said provisions
248D E