1985 Supreme(Cal) 435

High Court Of Calcutta
BIMAL CHANDRA BASAK, PRABIR KUMAR MAJUMDAR
ALLIED RESINS AND CHEMICALS LTD. - Appellant
Versus
M., M.TRADING CORPN.OF INDIA LTD. - Respondent
Suit No. 669 of 1980
Decided On : 12/19/1985

The decision of the beneficiary under a bank guarantee, as to whether the conditions for enforcement of the guarantee have been met, is final and binding on the bank, and the courts will generally not interfere with such a decision.

Headnote:

BANK GUARANTEE - INTERIM INJUNCTION - BANK GUARANTEE NOT UNCONDITIONAL - DECISION OF BENEFICIARY FINAL - NO PRIMA FACIE CASE FOR INJUNCTION.

Fact of the Case:

Plaintiff-appellant, a sole proprietor of a metal division business, imported 11 metric tonnes of molyoxide through defendant No. 1, a Government of India undertaking acting as a canalizing agent for chemical imports. A bank guarantee was furnished by defendant No. 2 United Industrial Bank Ltd. in favor of defendant No. 1 for the import. Disputes arose between the plaintiff-appellant and defendant No. 1 regarding the import, with the plaintiff-appellant contending that defendant No. 1 did not offer delivery of the goods contracted for and was unlawfully seeking to enforce the bank guarantee. The plaintiff-appellant filed a suit and an application for injunction restraining the defendants from receiving or demanding payment under the guarantee. The trial court dismissed the application, and the plaintiff-appellant appealed.

Finding of the Court:

The court held that the bank guarantee was not an absolute or unconditional one, as it was subject to the condition that the plaintiff-appellant failed to take delivery of the materials offered by the defendant No. 1. However, the court also held that, as per Clause 3 of the bank guarantee, the decision of the beneficiary (defendant No. 1) as to whether the plaintiff-appellant had failed to carry out their obligation was final and binding on the bank. The court found that the defendant No. 1 had invoked the guarantee and demanded payment based on the plaintiff-appellant's failure to take delivery of a portion of the consignment, which constituted a decision within the meaning of Clause 3 of the bank guarantee. The court further held that the plaintiff-appellant's argument that the bank guarantee was not enforceable because there had been no offer to deliver the goods at all was not tenable, as the question of not taking delivery did not arise in such a case and the final decision of the beneficiary applied.

Issues: 1. Whether the bank guarantee was an absolute or unconditional one, or whether it was subject to a condition that the plaintiff-appellant failed to take delivery of the materials offered by the defendant No. 1. 2. Whether the decision of the beneficiary (defendant No. 1) as to whether the plaintiff-appellant had failed to carry out their obligation was final and binding on the bank, as per Clause 3 of the bank guarantee. 3. Whether the plaintiff-appellant's argument that the bank guarantee was not enforceable because there had been no offer to deliver the goods at all was tenable.

Ratio Decidendi: 1. The court relied on the language of the bank guarantee, particularly Clause 1 and Clause 3, to determine that the guarantee was not absolute or unconditional but was subject to the condition that the plaintiff-appellant failed to take delivery of the materials offered by the defendant No. 1. 2. The court relied on the Supreme Court decision in United Commercial Bank v. Bank of India, which held that a bank which issues or confirms a letter of credit is not concerned with the underlying contract between the buyer and seller and that the duties of a bank under a letter of credit are created by the document itself. The court also referred to the decision in Elian and Rabbath v. Mastas and Mastas, wherein Lord Denning, M.R., stated that a bank guarantee is very much like a letter of credit and that the courts will do their utmost to enforce it according to its terms. 3. The court held that the plaintiff-appellant's argument that the bank guarantee was not enforceable because there had been no offer to deliver the goods at all was not tenable, as the question of not taking delivery did not arise in such a case and the final decision of the beneficiary applied.

Final Decision: The court dismissed the appeal and vacated the interim order passed by the Appeal Court, staying the operation of the order appealed from. The court also directed that the defendant No. 1 would sell the goods pursuant to the liberty given by the interlocutory order of the court, and that if any offer was made by the plaintiff-appellant or any other customer procured by the plaintiff-appellant, which was an offer higher than the offer already made in respect of the goods, or if no offer made, a reasonable offer, then the respondent No. 1 shall sell such goods to such offerers.