2005 Supreme(Cal) 686

Calcutta High Court
KALYAN JYOTI SENGUPTA, J.
Veer Probhu Marketing Limited and etc. - Appellant
Versus
National Supply Corporation - Respondents
G.A. Nos. 113, 114 and 115 of 2003
Decided On : 11 November 2005

Headnote:

BANK GUARANTEE - INJUNCTION - ARAB BANK FOR INVESTMENT AND FOREIGN TRADE V. UNION OF INDIA - VARIOUS BANK GUARANTEES FURNISHED BY THE PLAINTIFFS ABOVE NAMED - DEFENDANTS NOS. 1 TO 3 - PLAINTIFFS AND EACH OF THEM HAVE BEEN APPREHENDING INVOCATION OF THE SAID GUARANTEES - IN CONNECTION WITH THE AFORESAID THREE SUITS THREE SEPARATE INTERLOCUTORY APPLICATIONS OF THE PLAINTIFFS WERE MOVED UPON NOTICE TO THE DEFENDANT NO. 3 - ON AUGUST 14, 2000 AN ORDER WAS PASSED BY HONBLE JUSTICE RONOJIT KUMAR MITRA (AS HIS LORDSHIP THEN WAS) RESTRAINING BANK OF BARODA FROM MAKING ANY PAYMENT ON THE BASIS OF THE SAID BANK GUARANTEE UNTIL FURTHER ORDER OF THIS HONBLE COURT - THE SAID INTERIM ORDER WAS ULTIMATELY AFFIRMED ON 15TH MAY 2001 WHEN NONE WAS PRESENT ON BEHALF OF THE ARAB BANK DESPITE SERVICE - THUS THE EARLIER INTERIM ORDER OF AUGUST 14, 2000 HAD MERGED WITH THE FINAL ORDER PASSED ON 15TH MAY 2001 WHEN THE AFORESAID THREE APPLICATIONS WERE DISPOSED OF FINALLY - THIS FINAL ORDER CONFIRMING EARLIER INTERIM ORDER WAS ALSO COMMUNICATED BY THE LEARNED ADVOCATES OF THE RESPECTIVE PLAINTIFFS TO THE DEFENDANTS - ON OR ABOUT JANUARY 2003 INSTANT THREE APPLICATIONS HAVE BEEN MADE BY THE DEFENDANT NO. 2 ASKING FOR VACATING INTERIM ORDER OF INJUNCTION PASSED ON 14TH AUGUST 2000 AND CONSEQUENTLY DIRECTION UPON THE BANK OF BARODA TO IMMEDIATELY MAKE PAYMENT TO THE DEFENDANT NO. 2 AGAINST THE SAID BANK GUARANTEES - SUBSEQUENTLY ALL THESE APPLICATIONS FOR VACATING INTERIM ORDER WERE AMENDED BY AN ORDER SO FAR THEIR PRAYER PORTION IS CONCERNED AND TO THE EXTENT THAT DATE OF THE ORDERS SOUGHT TO BE VACATED SHOULD BE READ AS 15TH MAY, 2001 IN PLACE OF AUGUST, 2000 - IT IS STATED THAT IN SPITE OF THE AFORESAID ORDER OF AMENDMENT CHANGING THE DATE OF THE ORDER IN THE PRAYER PORTION NO STEP HAS BEEN TAKEN FOR CARRYING OUT THE SAME - THE COURT HELD THAT THE INJUNCTION ORDER WILL CONTINUE TILL THE DISPOSAL OF THE SUIT.

Fact of the Case:

The plaintiffs, who are the suppliers and exporters of diverse kinds of agro-commodities, in the course of their business sold and supplied to defendant No. 1 under several agreements certain quantities of chickpeas, coffee, natural Indian white rice and rice. In terms of the said agreement the first defendant in all these three suits for due payment of price of the above goods furnished irrevocable letter of credit in favour of all the plaintiffs. The plaintiffs in all these suits also furnished bank guarantee in the amount of 10 per cent of the amounts of the letter of credits. Each of the bank guarantees was furnished as above through their banker, namely M/s. Bank of Baroda the defendant No. 3, who in its turn requested the defendant No. 2 to furnish bank guarantee in favour of National Commercial Bank, Tripoli (defendant No. 5) which in its turn promised to honour the bank guarantee furnished it to the defendant No. 1. There has been no dispute as regard realization of the sale price upon invocation of the letter of credit. The disputes relate to and/or concern with the invocation of the performance bank guarantee furnished by the plaintiffs above named.

Finding of the Court:

The Court found that the defendant No. 2 had invoked its guarantee on Bank of Boroda on August, 2000 i.e. 10 months before. This clearly shows the fraudulent conduct. It is only after NASCO invoked guarantee the question of ARBIFT invoking guarantee on Bank of Boroda could arise. There was never any question of invoking for bank guarantee before NASCOs demand. It is, therefore, clear that the purported document of invocation is a bogus one. The Court also found that the bank guarantee has to be read as a whole. While reading the Court found the guarantee is unconditional no doubt for invocation. But it is clear from the bank guarantee furnishing of the same and invocation thereof are related to and/or connected with the invocation of bank guarantee by National Supply Corporation (defendant No. 1) furnished by National Commercial Bank, Main Branch. Therefore, it is clear that this bank guarantee was furnished by Bank of Boroda in order to secure payment which might be made in the event bank guarantee is invoked by ultimate beneficiary as has been rightly contended by Mr. Banerjee. The object of furnishing of the bank guarantee has been made clear by the bank guarantee itself. This bank guarantee is not a subjective one, and until and unless, in my view, the object is fulfilled invocation of the same cannot be allowed to be done.

Issues: 1. Whether the interim orders of injunction were obtained in collusion between the plaintiff and the defendant No. 3 and keeping the defendant No. 2 in dark and so also not making the defendant No. 5 as a party initially? 2. Whether the obligation of a banker under a performance guarantee lies altogether on different level and bank is not remotely concerned with the dispute between the buyer and the seller relating to the commercial contract? 3. Whether the defendant No. 2 has no place of business in India and guarantee furnished by the defendant No. 2 in favour of the National Commercial Bank, Tripoli being the Banker of the ultimate beneficiary was executed in United Arab Emirates outside the jurisdiction of this Honble Court?

Ratio Decidendi: 1. The Court held that the plaintiffs have been able to make out a very strong prima facie case that there must be some element of fraud in connection with the invocation. It is not understood why even after order of injunction passed by this Court restraining the defendant No. 3 from making payment which has got the cumulative effect of restraint the (sic) order against other defendants from receiving any payment indirectly the invocation was made. Prima facie the Court found there has been no lawful invocation at any stage by any of the parties. 2. The Court held that the defendant No. 2 had invoked its guarantee on Bank of Boroda on August, 2000 i.e. 10 months before. This clearly shows the fraudulent conduct. It is only after NASCO invoked guarantee the question of ARBIFT invoking guarantee on Bank of Boroda could arise. There was never any question of invoking for bank guarantee before NASCOs demand. It is, therefore, clear that the purported document of invocation is a bogus one.

Final Decision: The Court held that the injunction order will continue till the disposal of the suit. The Court also directed the plaintiff to revive the bank guarantee by renewing it till the disposal of the suit. Subject to this direction the interim order of injunction will continue till the disposal of the suit. The Court made it clear that if the suit is dismissed the plaintiff must pay interest at the rate of 9% per annum on the amount of bank guarantee and the defendant No. 3, Bank of Boroda shall make payment along with interest.