Basant Rlymers, Alwar vs State Chemical and Pharmaceuticals Corpn. of India Ltd. and Another

D.L. Mehta, J.—This is a revision petition directed against the judgment dated 1st February, 1983, passed by the learned Addl. District Judge, No. 2, Alwar in Civil Misc. Appeal No. 46 of 1981.

The petitioner-plaintiff filed a suit for permanent injunction against the defendants praying that the defendants be restrained from forfeiting the amount of bank guarantee furnished by the plaintiff and if the defendants claim to have forfeited the bank guarantee, then they should be restrained from withdrawing the same from the Bank. It was submitted that there was a breach of contract and the defendant only partially complied with it and supplied a part of the raw-material which was agreed upon between the parties. It was also submitted that time was extended from time to time.

Mr. Lodha appearing on behalf of the petitioner has referred the case of State Bank of India Vs. The Economic Trading Co. S.A.A. and Others, and submitted that a bank guarantee has a dual aspect. It is not merely a contract between the bank and the beneficiary of the guarantee; it is also a security given to the beneficiary by a third party. He submits that it is a trilateral contract and not only bilateral contract.

Mr. Gupta, counsel for the defendant-non-petitioner, relied upon the cases of Pesticides India v. S.C & P. Corporation of India AIR 1982 Delhi 78 and Banwari Lal Radhe Mohan Vs. Punjab State Co-operative Supply and Marketing Federation Ltd. and Another, in which their Lordships of the Delhi High Court held that the performance guarantees or performance bonds, a comperatively recent specie of Banker''s commercial credit has many similarities to a letter of credit and stand on a similar footing to a letter of credit. Such guarantees, even though having their genesis in the primary contract between the parties, are nevertheless "autonomous" and independent contracts and bank which gives a performance guarantee must honour that guarantee according to its terms. It will not be out of place to mention that the banking system is the backbone of the economy and it is necessary that there should be confidence in the banking system itself. If the bank guarantees are not encashable just like a credit note or there is an impediment in encashing the bank guarantee then the whole foundation of the banking system will collapse and the people will lose faith in it. Bank guarantees, for all purposes, should be taken to be a credit-note issued by the Bank in favour of the person in whose favour the bank guarantee has been issued, and it should be encashable just like a credit note ordinarily, unless the intention of the parties is otherwise. For example, there may be a case in which the parties come to an understanding that the liquidated damages will be determined and after the determination of the liquidated damages, the bank guarantee should be encashed. But, it is not a case of that type. This is a pure and simple case of encashing the bank guarantee. In such matter, the Court should not and generally cannot interfere in the matter of encashment of the bank guarantee.

For the reasons stated above, I confirm the order passed by the learned Addl. District Judge, No. 2, Alwar, dated 1st February, 1983. The revision petition fails and it is dismissed accordingly.