Case: Dwarikesh Sugar Inds.Ltd Vs. Prem Heavy Engg. Works P.Ltd

whatsoever the Guarantor hereby undertakes that the Sellers shall furnish a fresh or renewed guarantee on the Purchasers pro forma for such further period as the purchasers may intimate failing which the guarantor shall pay to the purchaser a sum not exceeding Rs. 51,70,000/- (Rupees fifty one lacs seventy thousand only) or the residual amount of balance unadjusted advance left after proportionate adjustment in accordance with clause 1 above as the purchaser may demand." 29. No plea was taken before the Courts below, and no document has been shown to us by the respondents, which can prima facie indicate that the full amount of advance had been adjusted under Clause 13 of the main contract between the appellant and the defendant No. 1. According to the appellants, the original guarantee was for Rs. 51,70,000/- but the same, after adjustment of the advance, in terms of clause 13 of the main agreement, stood reduced to Rs. 33,00,000/-. This amount was still outstanding and, therefore, the bank guarantee had not come to an end and was rightly invoked. 30. Coming to the allegation of fraud, it is an admitted fact that in the plaint itself, there was no such allegation. It was initially only in the first application for the grant of injunction that in a paragraph it has been mentioned that the appellant herein had invoked the bank guarantee arbitrarily. This application contains no facts or particulars in support of the allegation of fraud. A similar bald averment alleging fraud is also contained in the second application for injunction relating to bank guarantee No. 40/47. This is not a case where defendant No. 1 had at any time alleged fraud prior to the filing of injunction application. The main contract, pursuant to which the bank guarantees were issued, was not sought to be avoided by alleging fraud, nor was it at any point of time alleged that the bank guarantee was issued because any fraud had been played by the appellant. We have no manner of doubt that the bald assertion of fraud had been made solely with a view to obtain an order of injunction. In the absence of established fraud and not a mere allegation of fraud and that also having been made only in the injunction application, the Court could not, in the present case, have granted an injunction relating to the encashment of the bank guarantees. 31. It is unfortunate that the High Court did not consider it necessary to refer to various judicial pronouncements of this Court in which the principles which have to be followed while examining an application for grant of interim relief have been clearly laid down. The observation of the High Court that reference to judicial decisions will not be of much importance was clearly a method adopted by it in avoiding to follow and apply the law as laid down by this Court. Yet another serious error which was committed by the High Court, in the present case, was not to examine the terms of the bank guarantee and consider the letters of invocation which had been written by the appellant. If the High Court had taken the trouble of examining the documents on record, which had been referred to by the trial Court, in its order refusing to grant injunction, the Court would not have granted the interim injunction. We also do not find any justification for the High Court in invoking the alleged principle of unjust enrichment to the facts of the present case and then deny the appellant the right to encash the bank guarantee. If the High Court had taken the trouble to see the law on the point it would have been clear that in encashment of bank guarantee the applicability of the principle of undue enrichment has no application. 32. We are constrained to make these observations with regard to the manner in which the High Court had default with this case because this is not an isolated case where the Courts, while disobeying or not complying with the law laid down by this Court, have at time been liberal in granting injunction restraining encashment of bank guarantees. 33. It is unfortunate, that notwithstanding the authoritative pronouncements of this Court, the High Courts and the Courts subordinate thereto, still seem intent on affording to this Court innumerable opportunities for dealing with this area of law, thought by this Court to be well settled. 34. When a position, in law, is well settled as a result of judicial pronouncement of this Court, it would amount to judicial impropriety to say the least, for the subordinate Courts including the High Courts to ignore the settled decisions and then to pass a judicial order which is clearly contrary to the settled legal position. Such judicial adventurism cannot be permitted and we strongly deprecate the tendency of the subordinate Courts in not applying the settled principles and in passing whimsical orders which necessarily has the effect of granting wrongful and unwarranted relief to one of the parties. It is time that this tendency stops. 35. Before concluding we think it appropriate to mention about the conduct of the respondent-bank which has chosen not to be in this case. From the facts stated hereinabove it appears to us that the respondent bank has not shown professional efficiency, to say the least, and has acted in a partisan manner with a view to help and assist respondent No. 1. At the time when there was no restraint order from any Court, the bank was under a legal and moral obligation to honour its commitments. It, however, failed to do so. It appears that the bank deliberately dragged its feet so as to enable respondent No. 1 to secure favourable order of injunction from the Court. Such conduct of a bank is difficult to appreciate. We do not wish to say anything more but it may feel that it will be prejudicial in the event of the appellant taking action against it.

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

Explanation:
1[ds]25. In the instant case, as has been already noticed there were two types of bank guarantees which were issued. Bank Guarantee No. 40/51 for Rs. 26,15000/was issued to ensure timely performance of the agreement by respondent No. 1. The relevant terms of this guarantee firstly makes it clear that the bank has unconditionally and irrevocably undertaken to pay to the appellant, on written demand and without demand, the amount demanded by it. Secondly, Clause II of the said guarantee clarifies that the payment shall be made without demand and on the undertaking that the appellant is to be sole Judge whether the seller has committed any breach. Consequently the right of the appellant to recover the guaranteed amount is not to be effected or suspended by reason of any dispute which can be raised or pending before the Courts tribunals or arbitrator. Thirdly the guarantor had no right to know the reasons of or to investigate the merits of the demand or to question or to challenge the demand or to know any facts affecting the demand and lastly it was not open to the bank to require the proof of the liability of respondent No. 1 to pay the amount before paying the aforesaid guaranteed amount to theinjunction of the Court ought not to be an instrument which is used in nullifying the terms of a contract, agreement or undertaking which is lawfully enforceable. In its aforesaid letter dated 24th November, 1995 respondent No. 1 had clearly admitted that entire supply had not been made. In view of this also the High Court was not justified in granting anour opinion, this decision can be of no assistance to respondent No. 1 because in Larson and Toubros case (supra) this Court found that the guarantee which had been given by the bank was to ensure only till the successful completion of the trial operations and the taking over of the plant. The documents revealed that the contractual term in this regard has been complied with and after successful completion of the trial operation, the plant had admittedly been taken over. In view of this, it was held by this Court that the terms of the bank guarantee did not permit its invocation once the trial operations have been successfully completed.No plea was taken before the Courts below, and no document has been shown to us by the respondents, which can prima facie indicate that the full amount of advance had been adjusted under Clause 13 of the main contract between the appellant and the defendant No. 1. According to the appellants, the original guarantee was for Rs. 51,70,000/but the same, after adjustment of the advance, in terms of clause 13 of the main agreement, stood reduced to Rs.This amount was still outstanding and, therefore, the bank guarantee had not come to an end and was rightly invoked. 30. Coming to the allegation of fraud, it is an admitted fact that in the plaint itself, there was no such allegation. It was initially only in the first application for the grant of injunction that in a paragraph it has been mentioned that the appellant herein had invoked the bank guarantee arbitrarily. This application contains no facts or particulars in support of the allegation of fraud. A similar bald averment alleging fraud is also contained in the second application for injunction relating to bank guarantee No. 40/47. This is not a case where defendant No. 1 had at any time alleged fraud prior to the filing of injunction application. The main contract, pursuant to which the bank guarantees were issued, was not sought to be avoided by alleging fraud, nor was it at any point of time alleged that the bank guarantee was issued because any fraud had been played by the appellant. We have no manner of doubt that the bald assertion of fraud had been made solely with a view to obtain an order of injunction. In the absence of established fraud and not a mere allegation of fraud and that also having been made only in the injunction application, the Court could not, in the present case, have granted an injunction relating to the encashment of the bank guarantees.When a position, in law, is well settled as a result of judicial pronouncement of this Court, it would amount to judicial impropriety to say the least, for the subordinate Courts including the High Courts to ignore the settled decisions and then to pass a judicial order which is clearly contrary to the settled legal position. Such judicial adventurism cannot be permitted and we strongly deprecate the tendency of the subordinate Courts in not applying the settled principles and in passing whimsical orders which necessarily has the effect of granting wrongful and unwarranted relief to one of the parties. It is time that this tendency stops. 35. Before concluding we think it appropriate to mention about the conduct of thewhich has chosen not to be in this case. From the facts stated hereinabove it appears to us that the respondent bank has not shown professional efficiency, to say the least, and has acted in a partisan manner with a view to help and assist respondent No. 1. At the time when there was no restraint order from any Court, the bank was under a legal and moral obligation to honour its commitments. It, however, failed to do so. It appears that the bank deliberately dragged its feet so as to enable respondent No. 1 to secure favourable order of injunction from the Court. Such conduct of a bank is difficult to appreciate. We do not wish to say anything more but it may feel that it will be prejudicial in the event of the appellant taking action against it.