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1970 Supreme(Cal) 84
High Court of Calcutta
B.C. Mitra, S.K. Mukherjee, JJ.
Minerals And Metals Trading Corporation Of India Ltd. – Appellant
Versus
Surajbalaram Sethi – Respondent
Decided On : March 25, 1970
The autonomy of an irrevocable letter of credit and the dependence of a bank guarantee on a contract between the beneficiary of the bank guarantee and a third party.
Headnote:
BANK GUARANTEE - INJUNCTION - ENFORCEABILITY - TERMS AND CONDITIONS - INTERPRETATION - AUTONOMY OF LETTER OF CREDIT - DISTINCTION FROM BANK GUARANTEE - CONTINGENCY - PRIMA FACIE CASE - DISCRETION OF COURT - VARIATION OF ORDER.
Fact of the Case:
The appellant, Minerals and Metals Trading Corporation Ltd., appointed the respondent No. 1, Fallon Agency, as its Handling and Clearing Agent for non-ferrous metals, steel, and pig iron. The Agent furnished bank guarantees for the efficient and timely discharge of its duties. Disputes arose between the parties, and the Agent brought an action against the appellant for a decree and an injunction restraining the appellant from claiming or receiving payment from the Bank and the Bank from making any payment under the bank guarantees. The Agent obtained an injunction from the trial court restraining the appellant and the Bank from enforcing or paying under the guarantees.
Finding of the Court:
The court held that the appellant was not entitled to an injunction restraining the enforcement of the second guarantee because the terms of the guarantee provided that the appellant's right to recover the moneys from the Bank would not be affected by any dispute raised or any proceedings taken by the Agent. As for the first guarantee, the court held that the appellant was not entitled to an injunction because there was no prima facie evidence that the appellant had suffered any loss.
Issues: 1. Whether the appellant was entitled to an injunction restraining the enforcement of the second guarantee. 2. Whether the appellant was entitled to an injunction restraining the enforcement of the first guarantee.
Ratio Decidendi: 1. The court held that the appellant was not entitled to an injunction restraining the enforcement of the second guarantee because the terms of the guarantee provided that the appellant's right to recover the moneys from the Bank would not be affected by any dispute raised or any proceedings taken by the Agent. This term was intended to ensure that payment under the guarantee would not have to wait until the question of the liability of the respondent No. 1 was decided by a competent court or tribunal. 2. The court held that the appellant was not entitled to an injunction restraining the enforcement of the first guarantee because there was no prima facie evidence that the appellant had suffered any loss. The court noted that the appellant had not yet demanded payment under the guarantees and that it only appeared that the appellant intended to enforce the guarantees. The court also noted that the appellant had not provided any particulars of the loss it claimed to have suffered.
Final Decision: The appeal succeeded in part. The order of the learned judge was varied to the extent that the injunction, in so far as it related to the guarantee for the sum of Rs.50,000/-, was dissolved. The respondent No. 1 was also released from the undertaking to keep alive the said guarantee. The injunction granted by the learned judge as regards the guarantee for rs. 30,000/- was confirmed subject to the undertaking given by the respondent No. 1 to keep the said guarantee alive, which undertaking remained in force.
1. THIS appeal is directed against an order of injunction passed by A. N. Sen, J. restraining the appellant, the Minerals and Metals trading Corporation Ltd., from enforcing and the respondent No. 2, the Bank of India Ltd., from making any payment under two bank guarantees. The order was made on the respondent No. 1 giving an undertaking to keep the bank guarantees alive till the disposal of the suit.
2. BY an agreement in writing dated June 12, 1964, the appellant appointed the respondent No. 1, hereafter referred to as the Agent its Handling and Clearing Agent for non-ferrous metals to be received into the Port of Calcutta up to June 30, 1965. The said agreement provided inter alia:-
Clause VI Any loss suffered, extra expenses incurred by the Corporation on account of inadequate supervisor, inadequate supply of labour, scales or transport, inefficient attention to claims, documentation or any other work alleged thereto, will be recovered from the Handling Agent's Security Deposit or payable bills, if any.
Clause VIII : The Handling Agent shall furnish to the Corporation a Security Deposit of Rs. 20,000/- either in cash or in bank guarantee executed in favour of the Corporation towards the efficient and timely discharge of the items of work mentioned in this contract.
Clause IX : The Corporation shall have the right to forfeit the whole or part of the Security Deposit towards any loss or damage sustained by the corporation due to the negligence or failure on the part of the Handling agent in discharging the items of work enumerated in the contract.
The Agreement was renewed from time to time in respect of imports up to the end of March, 1968 on the same terms and conditions except that the rates of payment were enhanced and the security deposit was raised to Rs.30,000| -.
3. THE Agent in terms of the said agreement furnished a bank guarantee hereinafter referred to as the first guarantee through the Bank, initially for Rs.20,000/- and thereafter for Rs.30,000/-. The period of the guarantee was extended from time to time till April 30, 1963.
4. BY another agreement in writing dated March 3, 1966 the appellant appointed the Agent its Handling and desiring Agent for steel and pig iron to be imported into the Port of Calcutta till the end of March 1968. The said Agreement was entered into on terms identical with clauses (viii) and (ix) of the former Agreement, except that the Agent was required to furnish security deposit in the sum of Rs.50,000/- in cash or in bank guarantee. The said Agreement was renewed from time to time till the end of March, 1968 under the same terms and conditions.
5. THE Agent in terms of the said agreement furnished a bank guarantee through the Bank for Rs. 50,000/ -. The period of the guarantee was extended till April 30, 1968.
6. IN pursuance of the aforesaid agreements the Agent acted as the handling and Clearing Agent of the appellant in respect of non-ferrous goods, steel and pig iron. By a letter dated June 21. 1967 the Agent requested the appellant to enhance the rates. The request was repeated more than once but in vain. The appellant asked the Agent to extend the period of the contracts as also of the guarantees from time to time. The Agent agreed to such extensions but only for short periods. As no decision was taken by the appellant to enhance the rates, the Agent by its letter dated March 30, 1968 finally intimated to the appellant that it was not agreeable to extend the period of the contract of appointment beyond March 31, 1968. On March 29, 1968 the appellant made demands in writing in identical terms asking the Bank to pay forthwith two separate sums of Rs. 30,000/- and Rs. 50,000|- payable under the guarantees in case the guarantees were not extended up to 30th April, 1968. One of these letters may be set out in extenso. Dear Sir, we understand from Messrs. Fallon Agency that they are arranging through you the extension of the above-mentioned bank guarantee for a period of one month
