THE HON’BLE SRI JUSTICE D.S.R.VARMA AND THE HON’BLE SRI JUSTICE G.CHANDRAIAH C.M.A. No.331 of 2009 and C.M.A. M.P. No.531 of 2009 AND C.M.A. No.225 of 2009 and C.M.A. M.P. Nos.403 and 530 of 2009 09-9-2009 C.M.A.No.331 of 2009: Between Shapoorji Pallonji & Co. Ltd., Mumbai, Rep. by Mr. J.K. Chabra, Executive Vice President … Appellant/Petitioner and 1. Prajay Engineers Syndicate, Hyderabad, Rep. by D.Vijay Sen Reddy; and another … Respondents C.M.A. M.P. No.531 of 2009: Between Shapoorji Pallonji & Co. Ltd., Mumbai, Rep. by Mr. J.K. Chabra, Executive Vice President … Petitioner and 1. Prajay Engineers Syndicate, Hyderabad, Rep. by D.Vijay Sen Reddy; and another … Respondents C.M.A.No.225 of 2009: Between Shapoorji Pallonji & Co. Ltd., Mumbai, Rep. by Mr. J.K. Chabra, Executive Vice President … Appellant/Petitioner and 1. Prajay Engineers Syndicate, Hyderabad, Rep. by D.Vijay Sen Reddy; and another … Respondents C.M.A. M.P. No.403 of 2009: Between Shapoorji Pallonji & Co. Ltd., Mumbai, Rep. by Mr. J.K. Chabra, Executive Vice President … Petitioner and 1. Prajay Engineers Syndicate, Hyderabad, Rep. by D.Vijay Sen Reddy; and another … Respondents C.M.A. M.P. No.530 of 2009: Between Shapoorji Pallonji & Co. Ltd., Mumbai, Rep. by Mr. J.K. Chabra, Executive Vice President … Petitioner and 1. Prajay Engineers Syndicate, Hyderabad, Rep. by D.Vijay Sen Reddy; and another … Respondents THE HON’BLE SRI JUSTICE D.S.R.VARMA AND THE HON’BLE SRI JUSTICE G.CHANDRAIAH C.M.A. No.331 of 2009 and C.M.A. M.P. No.531 of 2009 AND C.M.A. No.225 of 2009 and C.M.A. M.P. Nos.403 and 530 of 2009 Common Judgment: (per D.S.R.Varma, J.) Heard Sri D.Prakash Reddy, learned Senior Counsel, representing Sri G.Vidya Sagar, learned Counsel appearing for the appellant-petitioner and Sri Vedula Venkata Ramana, learned Counsel appearing for respondent No.1-respondent No.1. 2. In view of the fact that the facts and circumstances in both the appeals are similar and arising out of the same transaction, the parties being common and the genesis in C.M.A.No.225 of 2009 also is the same contract between the parties in C.M.A.No.331 of 2009, and the questions of fact and law are being quite similar, though the matters are listed under the caption ‘Interlocutory’, with the consent of both the learned Counsel, the main appeals themselves are being disposed of by this common judgment. 3. C.M.A.No.331 of 2009:- This appeal is filed challenging the order and decretal order, dated 26-02-2009, passed by the III Additional Chief Judge, City Civil Court, Hyderabad, in dismissing the application I.A.No.629 of 2009 in O.P.No.396 of 2009 seeking to direct the respondents not to invoke bank guarantee of Rs.7,05,14,325/- against the mobilizing bank guarantee. 4. The appellant is the petitioner/contractor and respondents 1 and 2 are the employer and the bank, respectively. Therefore, for the sake of convenience, the parties herein are referred to as ‘the petitioner’ and ‘respondents 1 and 2’, respectively. 5. The facts that led to the filing of this appeal, in brief, are as under: The petitioner is a limited company. The petitioner entered into a contract with respondent No.1 for the construction of residential township at Turkapally, Shameerpet, Ranga Reddy district. As per the letter of Intent, dated 31-10-2008, the petitioner was to carry out civil works of 400 villas, was agreed to be completed by July, 2009. A mobilization guarantee was issued by way of bank guarantee on 08-12-2008 for a value of Rs.7,05,14,325/- (Seven crores, five lakhs, fourteen thousand, three hundred and twenty five only), which comes to 6% of the total cost of about Rs.117,52,38,750/-. The said mobilization bank guarantee was furnished by the petitioner upon payment made by the employer through a Demand Draft with respect to 400 villas as was originally agreed. But, subsequently, the number of villas was reduced to 150. Therefore, there was a substantial depletion in the work entrusted to the petitioner. Subsequently, disputes arose with regard to the commencement of the work and allegedly respondent No.1 failed to release their mobilization advance of 6% of the total cost and on account of the said failure, allegedly some delay had occurred in the commencement of the work. The petitioner brought this fact to the notice of respondent No.1 by letter dated 17-01-2009. Subsequently, the contract was terminated and as a sequel to that, when respondent No.1 was intending to invoke the mobilization bank guarantee furnished by the petitioner for a sum of Rs.7,05,14,325/-, in order to pre-empt the possible attempt of respondent No.1 to invoke the same, the petitioner filed the O.P., under Section 9 of the Arbitration and Conciliation Act, 1996 (‘the Act, 1996’, for brevity) before the trial Court praying for the following reliefs: (a) Restrain the Respondent No.1, its employees, servants and agents from invoking and/or encashing any of the bank guarantees as set out in Annexure 4 to the petition and/or from receiving any monies in respect of any guarantee that may have been invoked. (b) Direct the Respondent No.2 not to release the amount in the sum of Rs.7,05,14,325/- against the Mobilizing Bank Guarantee bearing No.171020220737-AA dated 8th of December 2008, at the request of the Respondent No.1. (c) Direct the Respondent No.1 to pay costs of the proceedings. (d) Pass such other or further orders as this Hon’ble Court may deem fit and proper in the facts and circumstances of the case. 6. Along with the said O.P., the petitioner also filed the application I.A.No.629 of 2009 under Section 9 of the Act, 1996 read with Section 151 C.P.C., seeking to direct the respondents not to invoke bank guarantee of Rs.7,05,14,325/- against the Mobilizing Bank Guarantee bearing No.171020220737-AA, dated 08-12-2008, drawn on respondent No.2, including any other instrument issued by Respondent No.2, pending arbitral proceedings. 7. The trial Court after hearing both sides dismissed the said application. Aggrieved by the said order, the present appeal has been preferred by the petitioner. 8. It appears, consequent upon dismissal of the said interlocutory application, the bank guarantee furnished by the petitioner towards mobilization advance for a sum of Rs.7,05,14,325/- was invoked. Now, it is the grievance of the petitioner that respondent No.1 had invoked the bank guarantee for a sum of Rs.7,05,14,325/-, which is 6% of the total value of Rs.117,52,38,750/-, which was originally for the construction of 400 villas and later on, reducing the same to 150 villas, thereby the value of work had also been reduced to Rs.43,40,26,234/-. Therefore, it is the further grievance that respondent No.1 knowing fully well that the value of the works had been drastically reduced, invoked the bank guarantee furnished by the petitioner towards mobilization advance for the original work of 400 villas. 9. Challenging the order of dismissal of I.A.No.629 of 2009, the present appeal is filed along with C.M.A. M.P. No.531 of 2009 praying for repayment of the amount of Rs.7,05,14,325/- to the petitioner or in the alternative, to direct respondent No.1 to pay the excess amount of Rs.4,44,72,750=96 ps. and deposit the balance amount in the Court. 10. The learned Senior Counsel contended that respondent No.1 had originally agreed to have the construction work of 400 villas to the petitioner, the total value of which is Rs.117,52,38,750/-; that subsequently, respondent No.1 itself informed through letter, dated 24-01-2009, to get the bank guarantee towards mobilization advance for a sum of Rs.2,12,56,140/- and after TDS modified to Rs.2,07,82,978/- and further informed the petitioner that till such modification of the bank guarantee is done, the original bank guarantee shall continue to remain with respondent No.1 only. Therefore, it is contended that respondent No.1 had full knowledge that there was a considerable decrease in the works entrusted to the petitioner and consequentially the bank guarantee towards mobilization advance also has to be slashed to the extent reduced. 11. This Court has been further informed that respondent No.1 asked the petitioner to refund Rs.4,81,33,492/-, which was paid in excess as mobilization bank guarantee as the number of villas to be constructed has been reduced from 400 to 150. Pursuant to the said request, the petitioner also paid the said amount to respondent No.1. Therefore, being aware of the fact that the work entrusted to the petitioner was drastically reduced, got back the excess amount towards mobilization advance from the petitioner and therefore, having received the said excess sum, it is totally unfair and fraud on the part of respondent No.1 to invoke the bank guarantee for the original sum agreed and causing thereby a loss of more than Rs.4 crores to the petitioner. 12. Therefore, instead of waiting for that modification of the bank guarantee takes place, the original bank guarantee for a sum of Rs.7,05,14,325/- was invoked pursuant to the order of dismissal of I.A.No.629 of 2009 passed by the trial Court, notwithstanding the appeal being filed before this Court. Therefore, the learned Senior Counsel vehemently contends that this is a deliberate fraud and very likely to cause irretrievable damage of a considerable extent to the petitioner and prays this Court to invoke the restitutional jurisdiction and direct respondent No.1 to repay the excess amount, as indicated in the letter dated 24-01-2009 addressed by respondent No.1 itself to the petitioner. 13. On the other hand, learned Counsel for respondent No.1 contended that -- firstly; the proportionate reduction of the bank guarantee amounts consequent on the number of villas would be in the nature of alteration of the terms and conditions governing the earlier contract when the bank guarantees were originally given. Such alterations are not permissible and the Court cannot interfere in such cases. Secondly; that the bank guarantee is totally a different and independent contract and the parties are governed by the terms and conditions of the bank guarantees only. Thirdly; he places reliance in order to substantiate these contentions on U.P.C.F. LTD. v. SINGH CONSULTANTS AND ENGINEERS (P) LTD.[1] and MAHATMA GANDHI SAHAKRA SAKKARE KARKHANE v. NATIONAL HEAVY ENGG. COOP. LTD.[2] 14. In the light of the above facts and the relative contentions of both sides, the points that arise for consideration in this appeal are – (1) Whether the trial Court was justified in dismissing the interlocutory application filed by the petitioner along with O.P.No.396 of 2009 ? (2) To what relief ? 15. Point No.1:- The undisputed facts are that originally, there was a contract entered into between the petitioner and respondent No.1 regarding the construction of 400 villas. As per the letter of Intent, respondent No.1 has to give 6% of the total value of the contract towards mobilization advance, which comes to Rs.7,05,14,325/-. For the said amount, the petitioner had given a bank guarantee. After the deduction of the contract of construction of 400 villas to 150 villas only, respondent No.1 informed the petitioner to get the bank guarantee modified to the extent of the reduction of the work and the consequential reduction in the mobilization advance and further asked the petitioner to return back the additional amount for a sum of Rs.4,81,33,492/- and pursuant thereto, the said additional amount towards mobilization advance had been returned to respondent No.1. Notwithstanding the return of the amount to respondent No.1, on the ground that the contract was terminated, respondent No.1 tried to invoke the bank guarantee. At that stage, the present O.P., has been filed before the trial Court along with the application I.A.No.629 of 2009 seeking to injunct respondent No.1 from invoking the bank guarantee. Initially status quo was granted by the trial Court, the same was challenged before this Court and upon the matter being remanded to the trial Court, the said application was heard and disposed of by way of dismissal. As a result, respondent No.1 invoked the bank guarantee. 16. In this connection, it is to be remembered that whether to grant an order of injunction or not, is the discretionary and equitable jurisdiction of the courts. But, such a discretion has to be exercised judiciously basing upon the facts and circumstances of each case. 17. It is the specific contention of the leaned Senior Counsel that respondent No.1 played fraud on the petitioner. 18. In this connection, it could be seen from the record and which fact is not in dispute, that by letter, dated 24-01-2009, which was marked before the trial Court as Ex.P-9, which is extracted, for ready reference, as under: “M/s Shapoorji Pallonji & Co. Ltd, 24th January, 2009 Construction Materials Group, Flat No.106, Sree Rama Residency, Whilefield, Madhapur, Hyderabad – 500 084. Dear Sir, Prajay Waterfront City Pursuant to the undestanding and agreement, we have provided you the work contract of our prestigious project, Prajay Waterfront City. Accordingly, you have executed necessary documents and provided us a Bank guarantees of Rs.129276262 towards the performance and mobilization advance to be given to you. We have accordingly got a demand draft bearing number 988020 dated 7.1.09 for Rs.68916470.00 after TDS amount, prepared from our bankers in your favour. However in the mean time it has been noticed that the progress of the project is not up to mark and quality of the work being executed is not up to desired and expected standards from a reputed name like your company. In view of the same, we had a discussion on the issues raised by Prajay team and it has been agreed to reduce your scope of work to 150 villas henceforth. Thus the mobilization amount payable to your gets decreased to Rs.21256140.00 and get payable after TDS will be only Rs.20782978/-. The same has also been accepted by you. However, since changes in submission of fresh guarantee is expected to take some time and since we have already got prepared the mobilization advance DD, you had agreed to accept the entire DD towards the work and refund the balance amount of Rs.48133492/- by 28th January 2008 through RTGS in favour of Prajay Engineers Syndicate Ltd in our bank account with Indian Overseas Bank Alwal branch, as per the details given hereunder and submit the revised bank guarantee in due course of time to us. It has also been agreed that till submission of revised reduced amount guarantee, the original bank guarantee shall continue to remain with us. We are enclosing the DD No.988020 dated 7.1.09 for Rs.68916470.00 in yo8r favour for your doing needful as per above understanding. Please arrange to effect your RTGS for the balance amount of Rs.48133492/- immediately but in any case before 28th January 2008. Kindly note that any delay in returning the balance money, shall attract invocation of bank guarantee for the difference amount. Kindly accept the above. RTGS Code IOBA0000623 Yours sincerely Account No.CC2810 For Prajay Engineers Syndicate Ltd Sd/- Executive Director. Prajay Engineers Symdicate Ltd.” 19. From a bare perusal of the above said letter, it is obvious that respondent No.1 admitted the factum of reducing the work of construction from 400 villas to 150 villas and also that the mobilization amount payable to the petitioner got decreased to Rs.2,12,56,140/- and the net amount payable after TDS will be Rs.2,07,82,978/- only. It is further obvious that the change of submission of fresh bank guarantee was likely to take some time and the petitioner agreed to refund the balance amount of Rs.4,81,33,492/- and till revised bank guarantee is submitted with revised reduced amount, the original bank guarantee shall continue to remain with respondent No.1. 20. Therefore, it is obvious that respondent No.1 had full knowledge that there was a substantial slash in the works entrusted to the petitioner and as a result, it is entitled to get back the amount from the petitioner for a sum of Rs.4,81,33,492/- and refund of the said amount was agreed by the petitioner. It is also not in dispute that the said amount was actually paid back by the petitioner to respondent No.1. Therefore, the preservation of the original bank guarantee for the originally agreed sum of Rs.7,05,14,325/- towards mobilization advance was only a formality till a modified bank guarantee in that regard is furnished by the petitioner. 21. In other words, it was admitted by respondent No.1 itself that it was agreed to give mobilization advance at the rate of 6% of the original value, which comes to Rs.2,12,56,140/- to the petitioner and in turn, the petitioner has to furnish bank guarantee (modified bank guarantee) in place of the original bank guarantee for a sum of Rs.7,05,14,325/- in favour of respondent No.1. This is not only agreed by both the parties, as could be seen from the letter addressed by respondent No.1, dated 24-01-2009, but also admitted by respondent No.1. 22. But, it is the contention of learned Counsel for respondent No.1 that the bank guarantee is an independent contract entered into between the parties and the courts have no jurisdiction to enter into that controversy. 23. The apex Court in U.P.C.F. LTD.’s case (1 supra) had observed that, “… … … An irrevocable commitment either in the form of confirmed bank guarantee or irrevocable letter of credit cannot be interfered with except in case of fraud or in case of question of apprehension of irretrievable injustice has been made out. … … …” It was further observed that, “… … … 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 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 guarantee would be negatived and the fabric of trading operation will get jeopardized.” It was also observed that the bank must pay if the documents are in order and the terms of credit are satisfied and that the bank cannot interfere into the disputed questions of fact that had actually arisen between the parties and that however, the only exception is ‘fraud’ in the transaction. 24. From the above, it is quite obvious that the courts cannot interfere in the business transactions basing on the contractual obligations. Bank guarantee, no doubt, is an independent contract between the parties to do and the bank (respondent No.2) cannot, in normal course, disown its obligations. 25. Therefore, the question is – whether the courts can exercise the jurisdiction and if so, in what cases ? The answer is made available in the above said decision. 26. In normal course, courts have no jurisdiction to enter into such contractual obligations. The only exception, as pointed out by the apex Court, is ‘fraud’ and special equities in the form of preventing ‘irretrievable injustice’. In fact, even if we go by the language of the apex Court, it is not the established fraud but a prima facie case of fraud, and a serious dispute in that regard is enough for the Court to interfere and of course, ‘irretrievable injustice’ to one party to the contract is another exception. 27. The apex Court in U.P.C.F. LTD.’s case (1 supra) further observed as under: “… … … If the element of fraud exists, then courts step in to prevent one of the parties to the contract from deriving unjust enrichment by invoking bank guarantee. … … …” 28. In view of the above said observations, at the cost of repetition, we may have to delve into the merits of the case. As already pointed out, by letter dated 24-01-2009, which was extracted above, it is respondent No.1 who informed the petitioner that the construction work was reduced to a considerable extent i.e., from 400 villas to 150 villas and therefore, it was entitled to refund of the amount paid to the petitioner towards mobilization advance for a sum of Rs.4,81,33,492/- and consequently, it was necessary for the petitioner to get the bank guarantee modified and till such time, the original bank guarantee would be with the custody of respondent No.1 only. The said letter was agreed by the petitioner and the amount as asked by respondent No.1 was paid by the petitioner and what remained is -- virtually a ritual of getting the bank guarantee modified reducing the liability of the petitioner to the limited extent of Rs.2,12,56,140/- in stead of Rs.7,05,14,325/-. 29. From the tenor of the said letter, we have no hesitation to point out that the petitioner was given to understand by respondent No.1 that the original bank guarantee for Rs.7,05,14,325/- will not be invoked till modified bank guarantee for a reduced sum of Rs.2,12,56,140/- was furnished by the petitioner with a further condition that the petitioner shall pay back the excess amount of Rs.4,81,33,492/- to respondent No.1. The initial obligation cast upon the petitioner of refunding the excess amount of Rs.4,81,33,492/- was performed by him and in such an event, respondent No.1 had an obligation to wait for furnishing of the modified bank guarantee by the petitioner. 30. If it were the real intention of respondent No.1 to invoke the original bank guarantee for a sum of Rs.7,05,14,325/- as such, there need not be any indication be given to the petitioner by respondent No.1 to pay back the excess amount and get the original bank guarantee modified. In a way, the conduct of respondent No.1 is something akin to ‘having the cake and eat it too’. The above conduct on the part of respondent No.1, in our considered view, is undoubtedly unacceptable and we have to essentially put on record that there is a serious dispute regarding the invocation of the bank guarantee and there is a prima facie ‘fraud’ if not established fraud. 31. That apart, it is to be further seen that the consequences that are to essentially follow now are -- the parties to the dispute have to invoke arbitration clause and without any much controversy, an arbitrator is to be appointed and the disputes regarding the termination of the contract are to be decided by the arbitrator and then only, the disputes would come to an end, provided no further litigation is initiated by either party invoking the jurisdiction of the courts under Sections 34 and 37 of the Act, 1996. Therefore, there is a long way to go for the petitioner to recover a sum of Rs.2,12,56,140/- towards mobilization advance. Therefore, though, in strict sense, it cannot be termed as an irretrievable injustice, the same can be termed as an injustice of substantive nature on account of prima facie fraud. 32. Therefore, the decision of the apex Court in U.P.C.F. LTD.’s case (1 supra) relied on by the learned Counsel for respondent No.1 is actually cannot be made applicable in the present facts and circumstances of case in favour of respondent No.1 and on the contrary, the same is more in favour of the petitioner. 33. In other words, it is our view that the broad principle laid down by the apex Court is unexceptionable, but the facts and circumstances of case on hand are attracted more by the exceptions pointed out by the apex Court. 34. However, though it is not pointed out by the learned Counsel for respondent No.1, it is open for respondent No.1 to contend that they have the right to invoke the original bank guarantee, inasmuch as the original contract itself was terminated. 35. In this context, it is to be seen again that the actual date of termination of the contract was on 19-02-2009. But, much before that such termination, the letter dated 24-01-2009 was addressed to the petitioner to pay back the amount and the amounts were actually paid back by the petitioner. Therefore, what remains is -- validity or otherwise of the termination of the contract, which is to be arbitrated and in that process, if respondent No.1 succeeds, the bank guarantee furnished by the petitioner can be invoked. Here, it is to be remembered that ‘bank guarantee’ shall mean ‘modified bank guarantee’. Even without waiting for the modified bank guarantee be furnished, the original bank guarantee itself was invoked, by which, respondent No.1 had the additional advantage of getting Rs.2,12,56,140/- more to its credit even after the termination of the contract. Here exactly we have to remember that the balance amount of Rs.2,12,56,140/- which would have been in the form of modified bank