:1: :1: :1: IN IN IN THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL CIVIL CIVIL APPELLATE JURISDICTION APPELLATE JURISDICTION APPELLATE JURISDICTION WRIT PETITION NO. 235 OF 2008 Sangli Miraj and Kupwad City Municipal Corporation ...Petitioners Versus Shri Mahadeo Krishna Patil and Ors. ....Respondents Mr.N.V.Walawalkar, Senior Counsel i/by. Mr.Sachin Prabhu Adv. for the petitioners. Mr.P.K.Dhakephalkar,Senior Counsel i/by. Mr.Umesh Mankapure, Adv. for respondent nos.1 and 2. Mr.S.S.Patwardhan for respondent no.3. CORAM: S.C.DHARMADHIKARI, J. 24th January, 2008. P.C. P.C. P.C. : : : 1. Mr.Walawalkar, Learned Senior Counsel appearing for the petitioners, for the purposes of the :2: :2: :2: present petition, Deletes Respondent No.4. The other respondents are represented by advocates whereas respondent no.3 is the bank. 2. Rule. Respondent nos.1 t 3 waive service. By consent, Rule made returnable forthwith. Heard learned Senior Counsel appearing for the Petitioner and the Respondent Nos. 1 and 2 so also learned Counsel for the Respondent No.3-Bank. 3. This petition is by the Sangli Miraj and Kupwad City Municipal Corporation and directed against an order passed by the Maharashtra State Co-operative Appellate court dated 21.11.2007, partly allowing the Appeal which is preferred by the respondent nos.1 and 2 challenging an order dated 20.10.2007 below Exhibit-5 in Co-operative Case No.343 of 2007. The Appellants before the Appellate court are the original Disputants in the Co-operative court. They are claiming an injunction against the Respondent no.3-Bank before me restraining it from in any manner paying an amount of Rs.4.25 crores to the petitioner corporation till the conclusion and hearing before a Arbitral Tribunal and :3: :3: :3: passing of Final Award therein. In other words, an Injunction is sought that the bank gurantee should not be encashed by the Petitioners before us. 4. The injunction was also claimed till the final Settlement of Accounts between the Opponent no.2 Firm to the Dispute (the contractor to whom the Octroi collection contract was awarded by the petitioner corporation) and the petitioner corporation. 5. Thus, the injunction was sought to restrain the bank from paying the monies under the subject bank guarantee till the disputes between the Corporation and the Contractor are finally settled. It is pertinent to note that the Respondent Nos.1 and 2 (Original Disputants/Plaintiffs) are not the Contractors themselves. As far as they are concerned, they have no direct contractual relationship with the petitioner herein. 6. The case of the respondents no.1 and 2 in the Dispute Application is that one Sai Trading Company had submitted tender for appointment of Octroi Collection :4: :4: :4: Agent of the petitioner corporation for the year 2006-2007. Their tender was accepted and they were awarded a contract for Octroi Collection by the Corporation on 27.4.2006. The contract work was to commence from 1.5.2006 and was to end on 30.4.2007. The terms were that a Minimum Deposit was to be made by the Contractor. 7. It is not in dispute that in terms of the contract, the said Contractor approached the respondent no.3 bank for a bank guarantee for Rs.4.25 crores. 8. In the Dispute Application the difficulties faced by the Contractor have been highlighted and it is contended that the Bank guarantee was given under some compulsion. Respondent nos.1 and 2 contended that they were guarantors for the transaction of the bank guarantees. They are nominal members of the third respondent bank. Once again, the disputes between the Octroi Collection agent and the corporation are set out and it is contended that they were referred to Arbitration. It appears that the Arbitral Tribunal constituted to adjudicate upon these disputes was :5: :5: :5: approached by the Contractor and an interim order was passed restraining the petitioner from encashing the bank guarantee of Rs. 4.25 crores. That order of the Arbitral Tribunal was challenged by filing Misc.Civil Appeal No. 32 of 2007 and it is not disputed that the Arbitral Tribunal’s order was set aside. It appears that the contractor challenged the District court’s order, but, this court confirmed the same. In such circumstances, apprehending that the bank guarantee of Rs.4.25 crores would be invoked that the respondent nos.1 and 2 who claim to be the guarantors in respect of the transaction of the bank guarantee, approached the Co-operative court and sought an injunction to restrain encashment of the bank guarantee by the Corporation. The application for interim relief in terms of the said dispute was filed but it was rejected by the Trial court. The trial court adverted to the dispute allegations and also the case set up by the Contractor before the Arbitral Tribunal and which resulted in passing of the above orders. After considering the entire material, the trial court refused the interim injunction in favour of respondent nos.1 and 2. There is a specific finding that the :6: :6: :6: original disputant failed to make out a prima-facie case, the balance of convenience is not in their favour and no irreparable loss would be caused in case the injunction is refused as prayed by them. 9. Aggrieved and dissatisfied with this order of the Trial court dated 20.10.2007, the respondent nos.1 and 2 approached the Co-operative Appellate court by filing an Appeal being Appeal from Order No.176 of 2007. That appeal has been allowed. Hence, this Petition under Article 227 of the Constitution of India. 10. It is rather surprising and shocking that the learned member of the Co-operative Appellate court has made certain observations in the order under challenge which according to him make out a prima-facie case of Fraud and, therefore, the restraint order deserves to be granted in his opinion. The fraud as referred is not even pleaded in the Dispute Application. That a fraud was perpetrated does not appear to be the case of respondent nos.1 and 2, even prior to the Dispute Application being filed. It is nobody’s case that the :7: :7: :7: bank guarantee is containing a stipulation "with demurer". If that were to be the case, nothing prevented the Contractor from making an issue of the same. It doesn’t appear that the contractor endorses and supports the plea of respondent nos.1 and 2- Guarantors. The entire discussion in the order of the lower appellate court is not based on the averments in the dispute application. The Interim Application for injunction made therein also does not speak of any Fraud or Irretreivable Injustice. It is for the first time that the appellate court entertains a plea that the original guarantee does not contain the word "without demurer" but "with demurer". That finding is rendered by adverting to the contents of a zerox copy of the bank guarantee. 11. This conclusion has been drawn by the Co-operative Appellate court despite it being made aware of the fact that the Interim Injunction prayed by the Contractor to restrain the bank from encashing the bank guarantee and paying the monies thereunder to the Corporation has been refused. The encashment of the Bank guarantee is now permissible in the light of the :8: :8: :8: order of the learned District Judge, Sangli in Misc.Appeal No.32 of 2007 delivered on 4.4.2007. Civil Revision Application No. 157 of 2007 challenging this order, has also been dismissed by this court. Time and again, the Hon’ble Supreme Court has observed that an injunction to restrain encashment of bank guarantee should not be granted. In (2006) 2 SCC page 728 BSES In (2006) 2 SCC page 728 BSES In (2006) 2 SCC page 728 BSES Ltd Ltd Ltd (Now Reliance Energy Ltd) vs. Fenner India Ltd and (Now Reliance Energy Ltd) vs. Fenner India Ltd and (Now Reliance Energy Ltd) vs. Fenner India Ltd and anr, anr, anr, A two judge bench of the Hon’ble Supreme Court has reiterated the principle once again. The Hon’ble Supreme Court has observed thus : "9. Mr.Rohtagi, learned Senior Counsel for the appellant, urged that the settled law in this country is that a bank guarantee is an independent contract between the bank and the beneficiary thereof. Accordingly, irrespective of any dispute between the beneficiary and the party at whose instance the bank has given the guarantee, the bank is obliged to honour its guarantee, as long as the guarantee is unconditional and irrevocable. Our attention was drawn to the judgment of this court in U.P. Coop.Federation Ltd vs. Singh Consultants and Engineers (P) Ltd ("hereinafter U.P.Coop.Federation"). It was pointed out in that case that a bank guarantee must be honoured in accordance with its terms as the bank, which gives the guarantee, is not concerned with the relations between the supplier and the customer. Neither is the bank concerned with the question whether any of them have failed in their contractual :9: :9: :9: obligations or not. In other words, the bank must pay according to the tenor of its guarantee, on demand, without proof or condition. 10. There are, however, two exceptions to this rule. The first is when there is a clear fraud of which the bank has notice and a fraud of the beneficiary from which it seeks to benefit. The fraud must be of an egregious nature as to vitiate the entire underlying transaction. The second exception to the general rule of non-intervention is when there are "special equities" in favour of injunction, such as when "irretrievable injury" or "irretrievable injustice" would occur if such an injunction were not granted. The general rule and its exceptions has been reiterated in so many judgments of this court, that in U.P. State Sugar Corpn. Vs. Sumac International Ltd (hereinafter "U.P.State Sugar Corpn.") this court, correctly declared that the law was "settled". 14. We are afraid that in the face of the law succinctly laid down in U.P. Coop Federation and reiterated in numerous judgments of this court referred to earlier, we are unable to accept the wide proposition of law laid down in the foreign judgments cited by Mr.Sorabjee. Whatever may be the law, as to the encashment of bank guarantee in other jurisdictions, when the law in India is clear, settled and without any deviation whatsoever, there is no occasion to rely upon foreign case law. 12. The nature of the fraud that is contemplated is also explained in these decisions. Thus, the law laid :10: :10: :10: down by the Hon’ble Supreme Court in U.P.Federation’s reported in (1988) 1 SCC page 174 case, is consistently followed. It is not as if the Learned judge was unaware of this ruling. Being aware of the same that he entertains a plea of fraud. The fraud as urged is also not enough for this case. The fraud that has to be pleaded and proved is the one referred to in the Supreme court’s decision (supra). That is admittedly not pleaded. There must be a clear cut case made out of fraud of the Beneficiary, namely, the petitioner before me in this case. The petitioner, Sangli Miraj & Kupwad City Municipal Corporation is not even a party to the original dispute. It was impleaded later on as it had to appear and point out that the proceedings vitally affects it. In such circumstances, when there was no foundation laid in the pleadings nor was the case substantiated in the manner referred to in the Supreme Court’s decisions, in my view there was no occasion for the appellate court to have set aside the order of the Trial Court and grant the injunction as prayed for. Time and again it has been emphasized that the bank guarantee is an independent contract. The disputes under the parent or underlying contract have :11: :11: :11: nothing to do and should not prevent the banker from discharging its obligations in terms of the Bank guarantee. The exceptions to the Principles against restraint order are well settled. In such circumstances, the order under challenge cannot be sustained. The Writ Petition is allowed. The order of the Co-operative Appellate court is quashed and set aside and the injunction application Exhibit-5 preferred by the Respondent No.1 and 2 stands dismissed. 13. At this stage Mr.Dhakephalkar, learned Senior Counsel appearing or respondent nos. 1 and 2 prays for continuation of the order of the Appellate court so as to enable the respondent nos.1 and 2 to challenge the order further. This is strongly opposed by Mr.Walwalkar, appearing for the petitioner. 14. For the reasons that I have indicated above and considering that no prima-face case of fraud was made out, the request of Mr.Dhakephalkear cannot be granted. Request refused. Petition allowed as above. No costs. :12: :12: :12: ******