S.R. Enterprises vs Madhya Pradesh Electricity Board

K.L. Issrani, J.

The present revision petition is against the order dated 18-11-1991 passed by the District Judge, Jabalpur in Misc. Judicial Case No. 149/91 refusing to grant injunction in favour of the applicant restraining the non-applicant from encashing the Bank Guarantee amount.

The submission of the learned counsel for the applicant is that the applicant had taken a contract for erection of towers on Indore Nagda 400 KV line from the non-applicant/Board. In terms of the contract, the Board had to prepare the foundation over which the tower was to be erected and supply various members (parts) from designated store where after the applicant was to erect the tower but the Board had given contract for preparation of foundation to other agencies. The Board failed to supply all the members, with the result that the applicant-Firm was prevented from erecting tower within the stipulated period of two months. The Board has illegally rescinded the contract. According to the applicant, the non-applicant/Board is liable to pay damages to the applicant to the tune of Rs. 12 lacs. The non-applicant/Board has invoked a Bank Guarantee that in case of breach of contract by the applicant they will encash the Bank Guarantee. The applicant-Firm has already approached the non-applicant/Board for Arbitration proceedings. It is not the demeanour of the non-applicant to hold the applicants guilty of breach of contract as such the Board cannot encash he bank guarantee. The applicant filed an application u/s 41 or the Arbitration Act before the Court below and prayed for injunction restraining the Board from encashing the bank guarantee.

The submission of the learned counsel for non-applicant/Board is that the Bank Guarantee given by the applicant is to the extent of 10% of the work to be done by the applicant. It is independent to original contract. Since the contract was time bound and the applicant-Firm failed to perform the same within the stipulated time, there was breach committed on their part. The non-applicant/Board has therefore, every right to encash the Bank Guarantee.

The lower Court after hearing the parties has held that there is no prima facie case in favour of the applicant. It, therefore, refused to grant any temporary injunction in favour of the applicant.

Though the revision petition before this Court was filed on 22-11-1991, but this Court did not think it proper to issue exparte temporary injunction. Notice, therefore, was issued to the non-applicant/Board for 5-3-1992, on which date it was found that the Bank Guarantee in question had been already encashed by the non-applicant. The prayer for temporary injunction was, therefore, refused.

In the opinion of this Court now there remains no substance in the present revision petition. It only remains to be decided as an academic question.

The submission of the learned counsel for the applicant is that it is because of the contract only the Bank Guarantee was furnished, as such it is a part of the original contract. The other submission is that party itself cannot be a Judge to decide the breach of the party. It is only the Arbitrator, who can decide as to which party has committed the breach. Learned counsel for the applicant has relied on the principles laid down in Nangia Construction (India) Pvt. Ltd. v. National Buildings Construction Corporation Ltd. and Ors. AIR 1990 NOC 177 (Delhi) and also in State of Karnataka v. Rameshwara Rice Mills, Thirthahalli AIR 1987 SC 1359. Learned counsel has also referred to the other writ petitions pending before this Court on the point in which he claims that the injunction was granted, but those documents are not on record.

Learned counsel for the non-applicant submits that the contract was a time bound contract. Prima facie a breach was committed by the applicant. In support of his contentions, learned counsel has cited in Hindustan Paper Corpn. Ltd. v. Kenellhouse Angami, 1991 Bank]. 193 in N. T. P. C. Ltd. v. Hind Galvanizing and Engg. Co. Ltd., 1991 Bank J. 282 and General Electric Technical Services Company Inc. Vs. M/s. Punj Sons (P) Ltd. and another, and has submitted that injunction to restrain the non-applicant for encashment of the Bank Guarantee cannot be granted in the absence of fraud or likelihood of irretrievable injustice between parties. It is not the case like that. There is no prima facie case in favour of the applicant. Prayer for temporary injunction was rightly refused by the lower Court.

In Nangia Construction (India) Pvt. Ltd. v. National Buildings Construction Corporation Ltd. and Ors. (supra), it has been held that the bank guarantee is not an independent contract. The terms of the guarantee have to be looked at to determine whether it is independent of any contract or not. That means for deciding whether it is independent contract or not, this Court has to look to the terms of the guarantee itself, which is not before this Court. This ruling is, therefore, not helpful to the applicant. In State of Karnataka v. Rameshwam Rice Mills, Thirthahalli (supra), it has been held that the powers of the State Government under an agreement entered into by it with a private person providing for assessment of damages for breach of conditions of the agreement and recovery of the damages is confined only to those cases where the breach of conditions is admitted or it is not disputed. This case, therefore, is also of no help to the applicant Cases of Hindustan Paper Corpn. Ltd. v. Kenellhouse Angami (supra) and N.T.P.C. Ltd. v. Hind Galvanizing and Engg. Co. Ltd. (supra), deal with the facts similar to the facts in the present case. In Hindustan Paper Corpn. Ltd. v. Kenellhouse Angami (supra), it has been held that a bank guarantee may be furnished in terms of a particular contract, a Bank Guarantee may be provided by a bank in favour of one of the parties to the original contract (hereinafter called "the beneficiary"). As to the question of enforcement of the bank guarantee by the beneficiary against the bank the rights and liabilities are to be governed by the bank guarantee itself and not by the terms and conditions of the original contract. So also in N. T. P. C. Ltd. v. Hind Galvanizing and Engg. Co. Ltd. (supra), it has been held that as long as demand is made in terms of bank guarantee, it is not a defence that under the parent contract beneficiary of guarantee is not entitled to amount from bank. Bank has to act in terms of the guarantee and nothing else. Therefore, in view of this it cannot be said that the bank guarantee is a part of the original contract. It cannot be said so also because in the original contract Bank is not one of the parties. In G. E T. Services Company Inc. v. M/s. Punj Sons (P.) Ltd. (supra), it has been held that injunction to restrain the encashment of bank guarantee cannot be granted in the absence of fraud or likelihood of irretrievable injustice between parties. The encashment of the bank guarantee could not be refused on the ground that the contractor has failed to make a reference to mobilisation advance in the letter seeking encashment of the bank guarantee and it amounted to suppression of material facts, in the sense that the mobilisation advance was under the contract to be recovered from the running bills. Secondly, the bank is not concerned with the outstanding amount payable by the contractor under the running bills. The right to recover the amount under the running bills has no relevance to the liability of the Bank under the guarantee. The liability of the Bank remained intact irrespective of the recovery of mobilisation advance or the non-payment under the running bills.

In view of the above, it cannot be held that the bank guarantee in this case was a part of the original contract or that in case it is encashed, the applicant will suffer irretrievable injustice.

Consequently, the revision petition has no merit and is dismissed but without any order as to costs.