Case: Svenska Handelsbanken Vs. Messrs Indian Charge Chrome and Others

to the plaintiff; and that if the letter of credit was drawn up or negotiated plaintiff might be forced into bankruptcy. 82. It will again be noticed that in this case the dispute was between the supplier and the purchaser and the decision is based on the facts found by the court for grant of preliminary injunction. 83. Halsbury Fourth Edition Volume 9, para 542 observes as follows :- "542. Conditions and warranties. The predominant modern approach is to consider the nature of the terms of the contract in order to decide whether those terms are conditions or warranties. Prima facie a breach of condition entitles the innocent party to rescind the contract and claim damages for any loss he may have suffered, whereas a breach of warranty only entitles him to damages." * 84. Section 12 of the Sale of Goods Act, 1930 provides the difference between condition and warranty and reads as follows:- "12. Condition and warranty.- (i) A stipulation in a contract of sale with reference to goods which are the subject thereof may be a condition ora warranty.(2) A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated.(3) A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated.(4) Whether a stipulation in a contract of sale is a condition or a warranty depends in each case on the construction of the contract. A stipulation may be a condition, though called a warranty in the contract". 85. Again Section 13 of the Sale of Goods Act provides when condition to be treated as warranty, relevant part of sub-sections (1) & (2) thereof reads as under: "13. When condition to be treated as warranty.- (1) Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may waive the condition or elect to treat the breach of the condition as a breach of warranty and not as a ground for treating the contract as repudiated.(2) Where a contract of sale is not severable and the buyer has accepted the goods or part thereof, the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty and not as a ground for rejecting the goods and treating the contract as repudiated, unless there is a term of the contract, express or implied, to that effect." * 86. It will be noticed that in the present case prima facie the provision for capacity of the power plant being of 108 M. W. was a condition. Therefore, the plaintiff could have repudiated the contract as provided in S. 12(2) of the Sale of Goods Act or treated as a warranty by waiving the condition or elect to treat the breach of the condition as a breach of warranty and not as a ground for treating @page-SC647 the contract as repudiated. 87. In the present case the plaintiff has not repudiated the contract. In fact it is working with the power plant and, therefore, the breach of condition has been treated by the plaintiff as a breach of warranty and in view of S. 12(3) of the Sale of Goods Act, the breach of warranty gives a right to claim for damages but not to a right to reject the goods and treat the contract as repudiated. Even the prayer in the plaint is for diminution of the price of the power plant and the relief is based on S. 59 of the Sale of Goods Act. 88. We have already held that the contracts between the lenders and the borrower are not vitiated by any fraud much less established fraud and there is no question of irretrievable injury. Therefore, there was no reason for the High Court to set aside the order of the trial court. 89. Again there is no case of any irretrievable injury either of the type as held in the case of Itek Corporation (566 Federal Suppl. 1210) (supra) as there is no difficulty in the judgment of this country being executable in the courts in Sweden. 90. The High Court was not right in working on mere suspicion of fraud or merely going by the allegations in the plaint without prima facie case of fraud being spelt out from the material on record. 91. The High Court was also in error in considering the question of balance of convenience. In law relating to bank guarantees, a party seeking injunction from encashing of bank guarantee by the suppliers has to show prima facie case of established fraud and an irretrievable injury. Irretrievable injury is of the nature as noticed in the case of Itek Corporation (566 Federal Supplement 1210) (supra). Here there is no such problem. Once the plaintiff is able to establish fraud against the suppliers or suppliers-cum-lenders and obtains any decree for damages or diminution in price, there is no problem for affecting recoveries in a friendly country where the bankers and the suppliers are located. Nothing has been pointed out to show that the decree passed by the Indian courts could not be executable in Sweden. 92. The High Court totally ignored the irretrievable injury which will be caused to defendant No. 12 in not honouring the bank guarantee in international market which may cause grievous and irretrievable damage to the interest of the country as opposed to the loss of money to the borrower / plaintiff. There was no question of defendant No.4 not making any demand. The instalments for repayment of the loans had already been fixed and liable to be paid without demand by defendant No.4. Defendant No. 12 is under a duty to pay the instalments regularly on a fixed date without any demand to defendant No.4. 93.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]It will be noticed that in the present case prima facie the provision for capacity of the power plant being of 108 M. W. was a condition. Therefore, the plaintiff could have repudiated the contract as provided in S. 12(2) of the Sale of Goods Act or treated as a warranty by waiving the condition or elect to treat the breach of the condition as a breach of warranty and not as a ground for treatingthe contract as repudiated.In the present case the plaintiff has not repudiated the contract. In fact it is working with the power plant and, therefore, the breach of condition has been treated by the plaintiff as a breach of warranty and in view of S. 12(3) of the Sale of Goods Act, the breach of warranty gives a right to claim for damages but not to a right to reject the goods and treatthe contract as repudiated.Even the prayer in the plaint is for diminution of the price of the power plant and the relief is based on S. 59 of the Sale of Goods Act.We have already held that the contracts between the lenders and the borrower are not vitiated by any fraud much less established fraud and there is no question of irretrievable injury. Therefore, there was no reason for the High Court to set aside the order of the trial court.Again there is no case of any irretrievable injury either of the type as held in the case of Itek Corporation (566 Federal Suppl. 1210) (supra) as there is no difficulty in the judgment of this country being executable in the courts in Sweden.The High Court was not right in working on mere suspicion of fraud or merely going by the allegations in the plaint without prima facie case of fraud being spelt out from the material on record.The High Court was also in error in considering the question of balance of convenience. In law relating to bank guarantees, a party seeking injunction from encashing of bank guarantee by the suppliers has to show prima facie case of established fraud and an irretrievable injury. Irretrievable injury is of the nature as noticed in the case of Itek Corporation (566 Federal Supplement 1210) (supra). Here there is no such problem. Once the plaintiff is able to establish fraud against the suppliers orand obtains any decree for damages or diminution in price, there is no problem for affecting recoveries in a friendly country where the bankers and the suppliers are located. Nothing has been pointed out to show that the decree passed by the Indian courts could not be executable in Sweden.The High Court totally ignored the irretrievable injury which will be caused to defendant No. 12 in not honouring the bank guarantee in international market which may cause grievous and irretrievable damage to the interest of the country as opposed to the loss of money to the borrower / plaintiff. There was no question of defendant No.4 not making any demand. The instalments for repayment of the loans had already been fixed and liable to be paid without demand by defendant No.4. Defendant No. 12 is under a duty to pay the instalments regularly on a fixed date without any demand to defendant No.4.