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1999 Supreme(Cal) 48
High Court Of Calcutta
RUMA PAL, M. H. S. ANSARI
HINDUSTAN COPPER LTD. - Appellant
Versus
RANA BUILDERS LTD. - Respondent
G. A. 2337 Of 1998
Decided On : 02/09/1999
An injunction restraining enforcement of an unconditional bank guarantee can only be granted in cases of fraud of an egregious nature as to vitiate the underlying transaction or in case of irretrievable injustice.
Headnote:
BANK GUARANTEE - INJUNCTION - ARBITRATION - FRAUD - IRRETRIEVABLE INJURY - MAINTAINABILITY OF APPEAL - WAIVER AND ACQUIESCENCE: 1. An injunction restraining enforcement of an unconditional bank guarantee can only be granted in cases of fraud of an egregious nature as to vitiate the underlying transaction or in case of irretrievable injustice. 2. The mere fact that a dispute is pending before an arbitrator does not, by itself, entitle a party to an injunction restraining the enforcement of a bank guarantee. 3. The appellant, by complying with an order of the Court directing it to return bank drafts to the bank, did not acquiesce in the order and waive its right to appeal, as it was bound to comply with the order and did not derive any benefit from it.
Fact of the Case:
The appellant, a contractor, was issued two bank guarantees by the respondent bank at the request of the respondent, a sub-contractor, to secure the performance of a contract and mobilization advance. Disputes arose between the parties, and the appellant invoked the bank guarantees. The respondent filed an application under Section 9 of the Arbitration and Conciliation Act, 1996, seeking an injunction restraining the appellant from encashing the bank guarantees. The learned single Judge granted the injunction, and the appellant filed an appeal.
Finding of the Court:
The Court held that the learned single Judge erred in granting the injunction as the respondent failed to show prima facie case of established fraud or any irretrievable inquiry. The Court further held that the appellant, by complying with an order of the Court directing it to return bank drafts to the bank, did not acquiesce in the order and waive its right to appeal.
Issues: 1. Whether an injunction can be granted restraining enforcement of an unconditional bank guarantee? 2. Whether the mere fact that a dispute is pending before an arbitrator entitles a party to an injunction restraining the enforcement of a bank guarantee? 3. Whether the appellant, by complying with an order of the Court directing it to return bank drafts to the bank, acquiesced in the order and waived its right to appeal?
Ratio Decidendi: 1. An injunction restraining enforcement of an unconditional bank guarantee can only be granted in cases of fraud of an egregious nature as to vitiate the underlying transaction or in case of irretrievable injustice. 2. The mere fact that a dispute is pending before an arbitrator does not, by itself, entitle a party to an injunction restraining the enforcement of a bank guarantee. 3. The appellant, by complying with an order of the Court directing it to return bank drafts to the bank, did not acquiesce in the order and waive its right to appeal, as it was bound to comply with the order and did not derive any benefit from it.
Final Decision: The Court allowed the appeal and set aside the order of the learned single Judge under appeal. The costs in the appeal shall be costs in the cause (Arbitration proceedings ).
( 1 ) THE appellant herein was the respondent in an application being A. P. No. 8 of 1998 filed by the respondent herein under Section 9 of the Arbitration and Conciliation Act, 1996 praying for an injunction restraining the respondent therein (appellant herein) from giving any effect to its letters of invocation of the bank guarantee No. 49/252 for Rs. 1. 38 crores or 49/263 for Rs. 1. 93 crores that were furnished by the Bank of Baroda, Sayajigunj Branch.
( 2 ) THE above appeal is directed against the order of learned single Judge dated 4th May, 1998 whereby the appellant was directed to return the two bank drafts dated 8th January, 1998 to the bank for cancellation and the Branch Manager, Sayajigunj Branch of the Bank was directed to invest the amounts thereof in a separate fixed deposit account free from any lien and keep the same renewed until further orders of the Court. The said fixed deposit account, it was directed, shall lie to the credit of the arbitration proceedings between the parties and the same shall abide by the result of the Award.
( 3 ) THE brief facts are that :the appellant issued a Letter of Intent for carrying out the works mentioned therein by the respondent. In terms thereof, the respondent furnished a bank guarantee for Rs. 1. 38 crores in lieu of security deposit. The said guarantee being No. 49/252 dated 28th December, 1994. On 1 14th January, 1995, contract in writing was entered into between the appellant and the respondent. By the said contract, the respondent agreed to carry out excavation and removal of 4 (four) Million cubic meters rock works at the appellant' Malanjkhand Copper Project at Balaghat in M. P. It contained an Arbitration clause for referring the dispute to the Chairman-cum-Managing Director of appellant or his nominee.
( 4 ) ON 4th January, 1995, the respondent furnished the second bank guarantee for Rs. 1. 93 crores, towards mobilisation advance being guarantee No. 49/263.
( 5 ) ACCORDING to the appellant since the inception, the respondent failed to duly, properly or in terms of the said contract execute and perform the works and discharge its obligation thereunder and that since February, 1997 virtually stopped the work at the said project and abandoned the same. The appellant thereupon by its letter dated 9th August, 1997 called upon the respondent to show cause as to why the contract should not be terminated by reason of its failure and neglect to execute the works and perform the obligation thereunder. Correspondence thus ensued between the appellant and the respondent. Meanwhile, on 16th August, 1997, the respondent instituted a suit being Regular Suit No. 1417 of 1997 in the Court of Civil Judge, Vadodara for an injunction restraining the Bank of Baroda from making any payment of the amounts of the said bank guarantees and an ex parte interim order was issued by the said Court directing status quo in respect of the said bank guarantees. On 1st October, 1997, the appellant terminated the contract. By a letter dated 6th October, 1997, the appellant invoked bank guarantee for Rs. 1. 38 crores and by another letter of same date that is 6th October, 1997, the appellant invoked the second bank guarantee for Rs. 1. 93 crores. A reminder letter was issued by the appellant on 20th October, 1997 to the bank calling upon it to pay the amounts of the said two bank guarantees. In reply to the said letter, the bank by its letter dated 24th October, 1997 enclosed a copy of a letter dated 21st October, 1997 of the respondent by which it was intimated to the bank that the respondent had obtained a stay order from the Court directing the appellant to maintain status quo in respect of the said two bank guarantees.
( 6 ) THE respondent by its letter dated 17th November, 1997 called upon the appellant to refer the disputes in accordance with the arbitration agreement.
( 7 ) IT must be stated here that the learned Civil Judge, Vadodara by his order dated 7th January
