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High Court Of Delhi
P.D.ALKARMA PRIVATE LIMITED - Appellant
Versus
CANARA BANK - Respondent
Interim Application 7934 of 1997
Decided On : 04/28/1998
A Bank guarantee is an independent contract whereby a bank undertakes to unconditionally and unequivocally abide by its terms and it cannot be affected by disputes between the parties to the underlying transactions. It creates an irrevocable obligation on the bank to perform the contract in terms thereof and on occurrence of the events mentioned therein, the bank guarantee becomes enforceable. It is only in exceptional cases like : (i) a case of established fraud (based on material events and not on bald pleadings in the application for stay) of "egregious" nature of which the bank has the knowledge and (ii) allowing encashment would result in irretrievable injustice to one of the parties concerned, the Court may interdict the encashment of the bank guarantee. In all other cases, the bank, giving such a guarantee, is bound to honour it as per its terms.
There were delays in diverse ways by the defendant. To start with, the mobilization advance was released to the plaintiff on 9 May 1996 after the expiry of more than four months from the date of work order (dated 28 December 1995) and after more than three months of furnishing of bank guarantee by the plaintiff, when, as per the terms of the contract, the stipulated completion time of contract was only five months, extendable by one month for final finishing. Again, vide letter dated 29 May 1996, the plaintifff furnished to the defendant precise details of the deficiencies in the civil work as a result whereof it was unable to carry out the structural glazing. Though the defendant objected to the tone of the letter but nonetheless admitted that there were areas of civil work which were yet to be taken up. Similarly, it kept quiet on the request of the plaintiff contained in the same letter that the date of start of work may be considered from the date the site was handed over to them after completion of the civil work.
As for the plea in defense based on the work order that work assigned to the plaintiff was to commence "immediately", on the issue of work order and, thereforee, the plea of the plaintiff that the work could not be executed for want of site could not be accepted, 1 feel that, the stand of learned counsel for the defendant is belied by the defendants own stand, reflected in the correspondence exchanged between the parties, particularly by its fax message dated 17 July 1996 and letter dated 3 October 1996.
When the plaintiff prima facie, seems to have utilised the entire mobilization advance for procuring the material for use on the defendants building, as per the approved specifications, I feel that the plaintiff has successfully brought out special circumstances which are sufficient to make the present case an exceptional one justifying interference by restraining defendant no.2 from enforcing the bank guarantee in question. As a matter of fact having gained knowledge that the plaintiff has procured substantial material, even invocation of the bank guarantee after oral termination of the contract appears to be fraudulent. Bearing in mind all these factors, I find that special equities are in favor of the plaintiff and if the defendant is allowed to encash the bank guarantee in question, it would amount to
irretrievable injustice to the plaintiff. I am, thereforee, satisfied that it is a fit case where defendant no. 1 needs being interdicted from encashing the bank guarantee in question.
( 1 ) IN the suit for declaration and permanent injunction, declaring that the bank guarantee dated 6 December 1996, as revalidated, is not enforceable in law and restraining defendant no. 2 from acting upon the said bank guarantee and invoking it, the plaintiff filed this application under Order 39 Rules 1 and 2 read with Section 151 Civil Procedure Code for grant of ad interim injunction to the same effect. On it, ex parte ad interim injunction order was issued on 19 August 1997 restraining defendant no. 1 bank from remitting to defendant no. 2 a sum of Rs. 20 lakhs under the bank guarantee in question.
( 2 ) ON being served with the summons/notice, defendant no. 2 has filed the written statement and reply to the application, resisting the suit and the application.
( 3 ) THE brief facts, material for the disposal of the application, culled out from the pleadings, are :
( 4 ) THE plaintiff, a joint venture company, incorporated in terms of an agreement between one M/s. P. D. Manufacturing International Pte. Ltd, Singapore and its Indian partner M/s. Alkarma Aluminium Pvt. Ltd of New Delhi, is engaged in the manufacture, installation and sale of aluminium curtain wall, cladding and glazing for the construction industry. Defendant no. 1 is the Canara Bank, who have furnished the bank guarantee in question on behalf of the plaintiff. Defendant no. 2 is M/s. Gemini Arts Ltd. , a company engaged in the business of construction of multi-storeyed buildings.
( 5 ) DEFENDANT No. 2 undertook the construction of a multi-storeyed project, named as Prasad Towers, at Chennai. Pursuant to negotiations between the plaintiff and the said defendant regarding fixing of semi-utilised aluminium curtain wall for the said Prasad Towers, the defendant awarded the job to the plaintiff by communicating the work order to them on 28 December 1995. The relevant portion of the work order reads as follows:
"completion Time: the total work shall be started immediately and completed within 5 months in phased manner from the date of this work order. However, we will give one more month for final finishing". x x x x x x x x x x x x
"mobilisation advance: 20% of the contract price shall be paid to you as Mobilisation Advance against bank guarantee and subsequently recovered on a pro-rata basis in proportion to the value of the work done, by the time 90% of the total work is completed".
( 6 ) THE plaintiff s case, succinctly stated, is that a bank guarantee for Rs. 20 lakhs was furnished by it to defendant no. 2 for mobilisation advance made by the said defendant in terms of the contract, which was utilised by it for procuring material worth over Rs. 24 lakhs for executing the job; defendant no. 2 failed to discharge its primary obligations like: (i) timely disbursement of mobilisation advance, despite plaintiff s furnishing of bank guarantee of defendant no. 1; (ii) making the site available despite repeated requests but assuring to do so all the while; and (iii) failure to get RCC beams casted, being pre-requisite for putting up contracted Aluminium Curtain Wall, which lapses on its part are admitted facts but the said defendant still, illegally purported to terminate the contract orally and sought to invoke the bank guarantee, which, if not stayed/restrained by injunction, would cause irreparable loss to it.
( 7 ) IT is claimed that plaintiff s officers had been visiting the site; being cognizant of the deficiencies and the defendant s failure to hand over the site it waived strict adherence to time schedule; while the plaintiff, on the contrary, did all to expeditiously and timely arranging and procuring specific material for executing the job from M/s. Hindalco Ltd. , against invoices produced on record; and also to have arranged manpower and in the bargain, due to failures of the defendant and their fraudulent misrepresentations, to have suffered heavy losses, entitling it to be reimbursed by defendant no. 2. The plaintiff states to have shocki
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