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1989 Supreme(Cal) 247
High Court Of Calcutta
Prabir Kumar Majumdar
SCRAP MOULD WILL - Appellant
Versus
METAL SCRAP TRADE CORPORATION - Respondent
Matter 1 Of 1988
Decided On : 05/11/1989
ABHIJIT CHATTERJI, Bhaskar Gupta, S.P.MAJUMDER, SOMNATH CHATTERJI
The bank guarantee was an independent contract between the bank and the beneficiary, and the bank was not concerned with the underlying contract between the parties. The quantification of loss or damage was not absolutely necessary for the enforcement of the bank guarantee.
Headnote:
BANK GUARANTEE - ENFORCEMENT - INJUNCTION - PRINCIPLES APPLICABLE - FRAUD - IRRETRIEVABLE INJUSTICE - QUANTIFICATION OF LOSS OR DAMAGE - INTERPRETATION OF BANK GUARANTEE - EFFECT OF INVOCATION - SPECIAL EQUITY - APPLICABILITY OF ARBITRATION ACT, 1940, SECTION 20.
Fact of the Case:
The petitioner, Scrap Mould, entered into a contract with the respondent, Metal Trade Corporation Limited, for the supply of shredded scrap. The contract required the petitioner to furnish a performance bond from an approved bank for US Dollars 1,82,280, being 5% of the value of the contract. The petitioner furnished a bank guarantee issued by Standard Chartered Bank for the said amount. The respondent invoked the bank guarantee on the ground that the petitioner had failed to perform under the contract. The petitioner filed an application under Section 20 of the Arbitration Act, 1940, for filing of the arbitration agreement contained in the contract, and a further application under Section 41 of the Act for an injunction restraining the enforcement of the bank guarantee.
Finding of the Court:
The Court held that the bank guarantee was an independent contract between the bank and the beneficiary, and that the bank was not concerned with the underlying contract between the parties. The Court also held that the quantification of loss or damage was not absolutely necessary, and that a decision by the beneficiary that there had been a loss or damage caused to the beneficiary by reason of breach of contract by the party at whose instance the bank guarantee was furnished was sufficient. The Court further held that the invocation of the bank guarantee by the beneficiary had been made in accordance with the terms of the bank guarantee, and that there was no case for irretrievable injustice.
Issues: 1. Whether the bank guarantee was an independent contract between the bank and the beneficiary, or whether it was subject to the underlying contract between the parties? 2. Whether the quantification of loss or damage was absolutely necessary for the enforcement of the bank guarantee? 3. Whether the invocation of the bank guarantee by the beneficiary had been made in accordance with the terms of the bank guarantee? 4. Whether there was a case for irretrievable injustice that would justify the grant of an injunction restraining the enforcement of the bank guarantee?
Ratio Decidendi: 1. The bank guarantee was an independent contract between the bank and the beneficiary, and the bank was not concerned with the underlying contract between the parties. 2. The quantification of loss or damage was not absolutely necessary for the enforcement of the bank guarantee. A decision by the beneficiary that there had been a loss or damage caused to the beneficiary by reason of breach of contract by the party at whose instance the bank guarantee was furnished was sufficient. 3. The invocation of the bank guarantee by the beneficiary had been made in accordance with the terms of the bank guarantee. 4. There was no case for irretrievable injustice that would justify the grant of an injunction restraining the enforcement of the bank guarantee.
Final Decision: The petition was dismissed and the interim orders were vacated.
( 1 ) THE petitioner Scrap Mould entered into a contract with the respondent Metal Trade Corporation Limited on or about 10th June, 1987 for supply of 28,000 MT plus minus shredded scrap at the sellers option. The scrap was intended to be purchased by the respondent as the canalising agent for distribution to various ultimate consumers in the Country.
( 2 ) ONE of the terms and conditions of the said contract between the parties required the petitioner to furnish a performance bond from an approved ink for US Dollars 1,82,280. 00 being 5% of the value of the contract.
( 3 ) IN compliance with the aforesaid requirement the petitioner furnished a bank guarantee issued by Standard Chartered Rank, 4, Netaji Subhas Road, Calcutta for US Dollars 1,82,280.
( 4 ) BY the said bank guarantee, the said Standard Chartered Bank guaranteed that they would indemnify the respondent and/or keep the respondent indemnified against any loss or damage that may be caused to or suffered by the respondent by reason of any breach of contract by the petitioner of any of the terms and conditions of the said contract or performance thereof.
( 5 ) THE relevant portion of the said Bank Guarantee is as follows:"against Contract No. FT/11/ms/c-24/7-88 dated 10. 6. 87 covering 28,000 MT 50/0 Melting Scrap of Carbon Steel-Shredded Scrap confirming to US ISIS Code No. 210/211 (hereinafter called said Contract) entered into between Metal Scrap Trade Corporation Ltd. Calcutta (hereinafter called the Purchaser) and Scrap Mould Will (hereinafter called the Seller) this is to certify that at the request of the seller, we, Standard Chartered Bank, 4, Netaji Subhas Road, Calcutta-l, are holding in trust in favour of the Purchaser Metal Scrap Trade Corporation Ltd. , Calcutta, the amount of US 1,82,280 (U. S. Dollars one hundred eighty two thousand two hundred eighty only) to indemnify and keep indemnified the Purchaser, Metal Scrap Trade Corporation Ltd. , Calcutta against any loss or damage that may be caused to or suffered by the Purchaser, Metal Scrap Trade Corporation Ltd. , Calcutta by reason of any breach of contract by Seller of any of the terms and conditions of the said contract and/or the performance thereof, we agree that the decision of the purchaser Metal Scrap Trade Corporation Ltd. , Calcutta whether any breach of any of the terms and conditions of the said Contract and/or in the performance thereof has been committed by the Seller and the amount of loss or damage that has been caused or suffered shall be final and binding on us and the amount of the said loss or damage shall be paid by us forthwith on demand to the Metal Scrap Trade Corporation Ltd. , Calcutta. "
( 6 ) BY a letter dated 19th December, 1987, the respondent invoked the said bank guarantee dated 1st July, 1987. The said letter is in following terms:
Metal Scrap trade Corporation Ltd.
225f, Acharya j. C. Bose Road,
Calcutta-20.
Ref. No. ACT|ft|ms|c-24|87-88|p-4
Dated 19th december, 1987
The Manager Corporate Banking,
Standard Chartered Bank,
4, Netaji Subhas Road,
Calcutta.
Dear Sir,
Sub: Performance guarantee Bond No. 852/301/87 dt. 1. 7. 87 for USD 1,82,280 executed by you in our favour on behalf of Scrap Mould Will Bahrain claim for encashment thereof due to non-performance by the seller.
In reference to above, we hereby invoke the above guarantee for encashment for a value of USD 1,82,280 (United States Dollar one lakh eighty two thousand two hundred eighty)as the party has failed to perform under the contract. You are directed to issue a draft in our favour in equivalent Indian rupees immediately on receipt of this notice for encashment.
Thanking you,
Yours faithfully,
For Metal scrap Trade Corporation Ltd.
Sd/- (S. Sinha ray)
Dy. Manager (FTA) 19. 12. 87.
( 7 ) A further letter of demand by the respondent dated 2nd January, 1988 was also addressed to the said Standard Chartered Bank. The said letter is as follow
