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Andhra Pradesh High Court
Judges : N.Y.HANUMANTHAPPA
D.L.F.CEMENT LTD. - Appellant
Versus
INSPECTOR OF POLICE, P.S., PANJAGUTTA, HYDERABAD - Respondent
Decided On : 02-02-99
Indian Penal Code1860 - Sections 406 and 511 -a-Arbitration act - Section 8(2) - Contract Act - Section 126 - Companies Act, 1956- Constitution of india,1950 - Article 226 - Suit for injunction - Quashing of order - Punishment for criminal breach of trust - company incorporated under Companies Act, 1956 having Head Office in -It has an authorised capital of crores and paid up capital of crores - It has more than lakhs citizens as its members/ share-holders - Company has set up a large cement plant at village State involving a capital cost of over crores - Plant has been set up in technical collaboration with Messrs nihon Cement Company Ltd. With financial participation by all Financial Institutions as well as International Finance corporation Washington - Respondent is Sub-Inspector of Police- Respondents are nationalised bank - Fourth respondent is company to whom two contracts were entrusted by petitioner company vide letter of award - Whether suit filed is maintainable or not when petitioner always maintained that suit was not maintainable - Whether to issue order since matter is sub judice - Whether demand is in terms of bank guarantee - Whether there has been breach of original contract or whether there has been a repudiation of original contract or whether there has been anticipatory breach of contract or whether there has been an acceptance of any repudiation - Held, It is clear that there is no dispute regarding entrustment of contract to fourth respondent and delay in execution of contractual work - Banks in question are not also disputing execution of bank guarantees - As far as relief sought for in writ petition is concerned proceedings under Article 226 of Constitution is not proper remedy to stall investigation proceedings - Normally no direction can be issued to banks by this Court while exercising jurisdiction under Art 226 of - Constitution to honour bank guarantees as same is purely a matter of contract which has to be agitated before appropriate forum - Whether writ petition is maintainable against banks directing them to honour bank guarantees to pay amount covered under guarantees is purely academic since said issue is going to be decided in order to be passed in C. R. P - "Court are therefore of opinion that correct position of law is that commitment of banks must be honoured free from interference by courts and it is only in exceptional cases that is to say in case of fraud or in a case where irretrievable injustice would be done if bank guarantee is allowed to be encashed Court should interfere - In this case fraud has not been pleaded and relief for injunction was sought by contractor/respondent on ground that special equities or special circumstances of case required it - Special circumstances and/or special equities which have been pleaded in this case are that there is a serious dispute on question as to who has committed breach of contract that contractor has a counter claim against appellant that disputes between parties have been referred to arbitrators and that no amount can be said to be due and payable by contractor to appellant till arbitrators declare their award - In our opinion these factors are not sufficient to make this case an exceptional case justifying interference by restraining appellant from enforcing bank guarantees - High Court was therefore not right in restraining appellant from enforcing bank guarantees - Supreme Court in case of Ansal Engineering Projects Ltd -Hydro development Corporation Ltd - As follows "liability of bank is absolute and unequivocal - It would thereby be clear that bank is not concerned with ultimate decision of a court and a tribunal in its finding after adjudication as to amount due and payable by petitioner to first respondent - What would be material is quantification of liability in letter of revocation - Bank should verify whether amount claimed is within terms of bank guarantee or letter of credit - It is axiomatic that any payment by bank obviously be subject to final decision of Court or Tribunal - It is clear that in event of any dispute between parties namely writ petitioner and fourth respondent same shall be referred to arbitrator - Observations of trial Court on question of dispute is that there arises a dispute - Under such circumstances it is proper when request is made Court shall make reference to arbitrator - Banks which have issued bank guarantees are bound to honour guarantees when demand is made unless fraud is made out - It is not duty of Court to investigate as to internal dispute between parties who are entering into agreement - Duty of Court is well settled that there shall not be an injunction restraining banks from honouring bank guarantees - When dispute has been made out and while referring dispute to arbitration Court should not have restrained banks from making payment - Revision Petition Disposed
( 1 ) THE petitioner has filed the writ petition seeking Writ of Mandamus or any other appropriate writ to grant the following reliefs: (1) to declare F. I. R. 15/97 of Panjagutta Police Station as illegal and to restrain the first respondent to proceed with the investigation pursuant to the F. I. R. after quashing the letters dated 9-1-1997 bearing no. l5/insn-PC/97 addressed by the first respondent to the petitioner s bankers and subsequent letters, (2) to direct the respondents 2 and 3 to honour the bank guarantee nos. 18/47, dated 19-2-1996 and 3/94-95, dated 19-5-1994 furnished by the respondents 2 and 3 to the petitioner and to grant such other reliefs,
( 2 ) A few facts which are necessary to dispose of the writ petition are asfollows: The petitioner is a company incorporated under the Companies Act, 1956 (hereinafter referred to as the Act) having Head Office in New Delhi. It has an authorised capital of Rs. 150 crores and paid up capital of rs. 128-42 crores. It has more than 1. 5 lakhs Indian citizens as its members/ share-holders. The company has set up a large cement plant at village Ras, tehsil Jaitaran, Pali district, Rajasthan State involving a capital cost of over rs. 400 crores. The plant has been set up in technical collaboration with Messrs nihon Cement Company Ltd. , Japan with the financial participation by all leading Indian Financial Institutions as well as International Finance corporation, Washington. The respondent No. l is the Sub-Inspector (sic. Inspector) of Police, Panjagutta. The respondents 2 and 3 are the nationalised banks. The fourth respondent is the company to whom two contracts were entrusted by the petitioner company vide letter of award dated 18-2-1994. The first one was to design, provide engineering, manufacture, supply and supervision services for the limestone crushing plant and the cement packing and loading systems and to do the civil and structural works at a firm price of Rs. 871. 50 lakhs. As per the terms of the contract the work has to be completed within 15 months from 14-4-1994 i. e. , by 14-7-1995. But the said work was not completed. The second contract was for mechanical erection and commissioning of the plant and machinery for lime stone crushing plant and cement packing and loading systems at a value of Rs. 94. 50 lakhs which had to be completed within 19 months i. e. , 14-11-1995 but the same was not completed.
( 3 ) THE petitioner paid a mobilisation advance of Rs. 16,53,750/- to the fourthrespondent in the second contract on submission of bank guarantee of rs. 14,17,500/ -. The fourth respondent submitted two bank guarantees, one for the performance of the contract and the other advance bank guarantee for second contract. The petitioner had sought the encashment of the both bank guarantees vide letter dated 8-1-1997.
( 4 ) THE fourth respondent had entered into contract and had agreed to complete the work within the stipulated time but failed to perform in spite of several letters and reminders made by the petitioner company. The fourth respondent also failed to rectify the defects pointed out by the petitioner in the work that was carried out by the fourth respondent. The second respondent had issued a bank guarantee No. 18/47, dated 19-2-1996 for an amount of rs. 25 lakhs in favour of the petitioner. The second respondent without any authority of law stopped payment of bank guarantee vide letter No. l5/cr/ inspopg/97, dated 9-1-1997. The third respondent had also issued an advance bank guarantee No. 3/94-95, dated 19-5-1994 for Rs. 14. 175 lakhs. But the same was stopped at the instance of the first respondent vide letter dated 9-1-1997. Apart from stopping the encashment of bank guarantees the first respondent at the instance of the fourth respondent seized the original bank guarantees.
( 5 ) FURTHER the case of the petitioner is that when the petitioner had made demand to the respondent banks, the said banks suggested it to surrender the ori
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