HONOURABLE SRI JUSTICE ASHUTOSH MOHUNTA AND HONOURABLE SRI JUSTICE M.SATYANARAYANA MURTHY CMA Nos.536 AND 537 OF 2014 DATED 29th APRIL, 2014.
BETWEEN Uttar Haryana Bijli Vitran Nigam Ltd., Rep. by its Chief General Manager, Panchkula, Haryana State.
….Appellant in both appeals And Trinity Transformers Pvt Ltd., rep. by its Director P.V.S. Sarma, Secunderabad and ors.
…Respondents in both appeals.
HONOURABLE SRI JUSTICE ASHUTOSH MOHUNTA AND HONOURABLE SRI JUSTICE M.SATYANARAYANA MURTHY CMA Nos.536 AND 537 OF 2014
COMMON JUDGMENT:
These two Civil Miscellaneous Appeals can be disposed of by this common order.
CMA.SR.No. 14321 of 2014 is preferred being aggrieved by the order dated 24.9.2013 passed in OP.No. 1989 of 2013 by the learned II Additional Chief Judge, City Civil Court, Hyderabad, whereby the second respondent-Andhra Bank was restrained from encashing the bank guarantees total amounting to Rs.3,93,30,000/- lying with it and in the event of bank guarantees are encashed, the first appellant should deposit the said amount into the Court; whereas CMASR.No. 14352 of 2014 is preferred being aggrieved by the order dated 26.9.2014 passed in OP.No. 1978 of 2013 by the very same Court modifying the earlier order that in event of encashing the bank guarantees by the time of injunction order is served, the appellant shall deposit the amount covered by the said bank guarantees into the Court.
Briefly stated, the facts of the case are that: the first respondent is a company incorporated under the Companies Act and is engaged in the business of manufacture, construct, operate equipment and machinery parts related to power stations, boiler house, switch yards, transformers etc. The appellant herein raised an order for the purchase of 1035 Nos. of 200 KVA Distribution Transfers on BRG Energy Limited/third respondent, which was asked to furnish a performance Bank Guarantees at 20% of the contract price, with two Nos. BG each of 10% value. It is the case of the first respondent that it had taken over the Amorphous Metal Distribution Transformers (AMDT) business/plaint of the third respondent and duly informed the same to the appellant. It is the further case of the first respondent that out of 1035 transformers, it had supplied 261 transformers to the appellant and still 774 transformers were to be supplied. It is the further case of the first respondent that the appellant had required for extension of bank guarantee, which was duly complied with by it ( first respondent). Thereafter, it informed the revised delivery schedule to the appellant. While the matters stood thus, the appellant addressed a letter dated 20.9.2013 to the second respondent- bank for encashment of bank guarantees on the ground that the third respondent-BRG Energy Limited has breached the contractual obligations by not supplying the full quantity of material as mentioned in the purchase order despite great persuasion. Hence the aforesaid OPs.
In these appeals, it is mainly submitted by the learned Counsel for the appellant that the Court below has no territorial jurisdiction to decide the OPs inasmuch as the jurisdiction, as per the Contract, is conferred only on the Courts situated in Panchkula, State of Haryana and therefore the orders under appeals are nullity. Further, it is submitted that the appellant being the Government owned company, repayment of bank guarantee amount is not an issue if the same is ordered by the competent Court/Arbitral Tribunal. He pointed out that in view of the catena of decisions of the Apex Court, the Courts shall not interfere with the invocation of Bank guarantee which are unconditional to nature and therefore the order under appeal is not only erroneous, but also illegal and without jurisdiction.
On the other hand, the learned Counsel for the first respondent supported the orders of the Court below.
Perused.
We are not inclined to go into the merits or otherwise of the argument of the learned Counsel for the appellant that the Court below had no territorial jurisdiction entertain the OPs preferred by the first respondent, because the appellant herein had taken an objection to the entertainment of the aforesaid OPs on the ground of lack of territorial jurisdiction in the first instance itself and the said issue is pending consideration by the Court below, therefore, the objection having been taken at the first instance itself and the Court at the first instance having not yet proceeded to decide this question of territorial jurisdiction, we deem it appropriate to keep it open to the Court below to decide the same as a preliminary issue.
The next issue relates to invoking of the bank guarantees. It is settled law that the bank guarantee is an independent contract between bank and the beneficiary of the guarantee. The Courts have to be loath in granting injunction restraining the realization of the bank guarantee except in the situation where a fraud was played in obtaining the bank guarantee which vitiated the very acceptance of such guarantee and the beneficiary wanted to take advantage of the fraud and, secondly, where the encashment of bank guarantee would result in irreparable harm and injustice to one of the parties concerned.
The Supreme Court in Dwarikesh Sugar Industries Limited vs.Prem Heavy Engineering Works (P) Limited ( AIR1997SC2477) observed as under:
Numerous decisions of this Court rendered over a span of nearly two decades have laid down and reiterated the principles which the courts must apply while considering the question whether to grant an injunction which has the effect of restraining the encashment of a bank guarantee. We do not think it necessary to burden this judgment by referring to all of them. Some of the more recent pronouncements on this point where the earlier decisions have been considered and reiterated are Svenska Handelsbanken v. Indian Charge Chrome, Larsen and Toubro Ltd. v. Maharashtra SEB, Hindustan Steel Workers Construction Ltd. v. G.S. Atwal and Co. (Engineers) (P) Ltd. and U.P. State Sugar Corporation v. Sumac International Ltd. The general principle which has been laid down by this Court has been summarised in the case of U.P. State Sugar Corpn. as follows: (SCC p. 574, para 12) The law relating to invocation of such bank guarantees is by now well settled. When in the course of commercial dealings an unconditional bank guarantee is given or accepted, the beneficiary is entitled to realize such a bank guarantee in terms thereof irrespective of any pending disputes. The bank giving such a guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer. The very purpose of giving such a bank guarantee would otherwise be defeated. The courts should, therefore, be slow in granting an injunction to restrain the realization of such a bank guarantee. The courts have carved out only two exceptions. A fraud in connection with such a bank guarantee would vitiate the very foundation of such a bank guarantee. Hence if there is such a fraud of which the beneficiary seeks to take the advantage, he can be restrained from doing so. The second exception relates to cases where allowing the encashment of an unconditional bank guarantee would result in irretrievable harm or injustice to one of the parties concerned. Since in most cases payment of money under such a bank guarantee would adversely affect the bank and its customer at whose instance the guarantee is given, the harm or injustice contemplated under this head must be of such an exceptional and irretrievable nature as would override the terms of the guarantee and the adverse effect of such an injunction on commercial dealings in the country.”
There is no quarrel as regards the principles enunciated in the above judgments. The Court has to see whether those principles are applicable to the facts of the present case or not.
Coming to the case on hand, there is no dispute that the first respondent has given Performance Bank Guarantee as per the Contract to the appellantit is to be seen that in the letter dated 20.09.2013 addressed to the second respondent-bank, it has been stated by the appellant that as the third respondent breached the contractual obligation by not supplying the full quantity of material as mentioned in the purchase order, it lodged its claim for encashment of the bank guarantees. It is pertinent to see that in the event of breach of any of the terms and conditions by the supplier-first respondent, the appellant can terminate the contract. From a reading of the clauses of the contract, it is clear that, in the event there being any dispute or difference between them arising out of or in connection with this Contract or in the interpretation of any of the provisions hereof, they shall endeavor to meet in an effort to resolve such dispute by referring the matter to the Arbitration. It is equally pertinent to mention that there has been no complaint from the appellant regarding the performance of the supplied products. In view thereof, the appellant cannot invoke the bank guarantees. Even otherwise also, the appellant being the Government owned Company, no loss, much less any grave or irreparably loss would be caused if the bank guarantees are not allowed to be invoked. On the other hand, the first respondent would suffer grave and irreparable loss if the bank guarantees are allowed to be invoked. Thus we find that prima facie case and balance of convenience are in favour of the first respondent. If the bank guarantee is allowed to be invoked, the first respondent would suffer irretrievable loss.
Having regard to the decision of the Apex Court supra and reasons stated hereinabove, we do not see any illegality or irregularity in the orders passed by the Court below warranting interference in these appeals, which are liable to be dismissed at the threshold.
The Civil Miscellaneous Appeals are dismissed. Miscellaneous petitions if any pending consideration shall stand closed. No order as to costs.
JUSTICE ASHUTOSH MOHUNTA JUSTICE M. SATYANARAYANA MURTHY DATED 29th APRIL, 2014 Msnro