Back
High Court Of Delhi
SYNTHETIC FOAMS LIMITED - Appellant
Versus
SIMPLEX CONCRETE PILES (INDIA)PRIVATE LIMITED - Respondent
Interim Application 4626 of 1986
Decided On : 11/06/1987
BANK GUARANTEE - INJUNCTION - TERMS AND CONDITIONS - INTERPRETATION - FRAUD - MISREPRESENTATION - SUPPRESSION OF FACTS - SPECIAL EQUITY - BALANCE OF CONVENIENCE - PRIMA FACIE CASE - BANK'S LIABILITY - ENFORCEMENT OF BANK GUARANTEE - CONTRACTUAL OBLIGATIONS - IRREPARABLE INJURY - COURT'S DISCRETION - CONSTRUCTION OF DOCUMENTS - VIOLATION OF TERMS.
Fact of the Case:
Plaintiff, a company manufacturing thermal insulation materials, entered into a contract with Defendant No. 1, a civil contractor, to carry out ceiling insulation work for a project. Plaintiff furnished a bank guarantee from Defendant No. 4 bank as security for an advance payment received from Defendant No. 1. Plaintiff commenced work and delivered materials at the site. However, due to a devastating fire at the fabrication building, the project was halted, and Defendant No. 1 invoked the bank guarantee, claiming breach of contract by Plaintiff. Plaintiff filed a suit for declaration and permanent injunction, alleging that the invocation of the bank guarantee was unjustified and fraudulent.
Finding of the Court:
The court found that Plaintiff had established a prima facie case for grant of ad interim injunction. The court held that the invocation of the bank guarantee was not justified as there was no default or breach of contract on the part of Plaintiff. The court also found that Defendant No. 1 had misrepresented facts and suppressed material information in its invocation of the bank guarantee. The court further held that the balance of convenience lay in maintaining the status quo and not permitting encashment of the bank guarantee, as it would cause irreparable injury to Plaintiff.
Issues: 1. Whether Plaintiff had established a prima facie case for grant of ad interim injunction. 2. Whether the invocation of the bank guarantee by Defendant No. 1 was justified. 3. Whether Defendant No. 1 had misrepresented facts and suppressed material information in its invocation of the bank guarantee. 4. Whether the balance of convenience lay in maintaining the status quo and not permitting encashment of the bank guarantee.
Ratio Decidendi: 1. To obtain an ad interim injunction, Plaintiff must establish a prima facie case, demonstrate that the balance of convenience lies in granting the injunction, and show that irreparable injury would be caused if the injunction is not granted. 2. A bank guarantee is an absolute obligation, but it can only be enforced if the conditions of the bond are satisfied and the demand made on the bank is in strict accord with its terms. 3. Fraud, misrepresentation, or suppression of material facts can give rise to a special equity in favor of the plaintiff, allowing the court to grant an injunction restraining the bank from making payment under the bank guarantee. 4. The court has the discretion to grant an injunction to restrain the performance of contractual obligations arising out of a letter of credit or bank guarantee in exceptional cases, such as fraud or misrepresentation.
Final Decision: The court granted an ad interim injunction restraining Defendant No. 4 bank from making any payment under the bank guarantee in favor of Defendant No. 1.
( 1 ) BY this order I propose to dispose of I. A. No. 4626 of 1986 filed under Order 39 rules I and 2 and Section 151 Civil Procedure Code by the plaintiff for restraining the defendant No. 4-bank from making any payment under the bank guarantee No. 59/85 in pursuance of the invocation dated 31st July, 1986 by defendant No. 1. The application is opposed on behalf of defendant No. 1. I have heard the learned counsel for the parties and after giving my considered thought to the matter before me I have come to the following findings :
( 2 ) THE facts giving rise to this order are that the plaintiff M/s. Synthetic Foams Ltd. has filed a suit No. 1685 of 1986 for declaration and permanent injunction on the allegations that the plaintiff, a company registered under the Companies Act, 1956, are manufacturers of Thermal Insulation materials under the brand name of "multipurl"; that defendant No. 2. a Government of India undertaking, in the process of setting up a new project at Panchkula had appointed defendant No. 3, another Government of India undertaking, as consultant for that project and that defendant No. 4 is a banking institution and are bankers of the plaintiff company; that defendant No. I were appointed as Civil Contractors for the project by defendant No. 2 and it had invited quotations for ceiling insulation and the quotations of the plaintiff in this behalf were accepted and in consequence an order No. GID/nd/67/5281 dated 23rd August, 1985 was placed with the plaintiff company to carry out ceiling insulation with Multipurl-3 Panels for total ceiling area of 16,000 sq. meters; that according to the said order defendant No. I was to pay an advance equivalent to 5 per cent of the value of the order on submission of bank guarantee bond of the equivalent value, which was to remain valid till the advance was recovered from the work bills of the plaintiff; that the said advance was to be recovered from the running bills of the plaintiff @ 2 per cent and balance from its two last bills; that accordingly an advance of Rs. 1 lac was given by defendant No. I to the plaintiff and in pursuance thereof the plaintiff company furnished a bank guarantee No. 59/85 dated 17th September, 1985 from the Indian Overseas Bank; that the plaintiff company started execution of the contract on 26th November, 1985 and delivered at the site Multipurl P-3 Panels on various dates totalling 5,828. 88 Sq. Meters along with the necessary ancillary materials, tools, etc. under receipt of the Site Engineer of defendant No. 1; that the plaintiff company has executed ceiling insulation of a total area of 5,345 sq. meters in the fabrication building by the end of May, 1986 and the same was approved and accepted by defendants 1, 2 and 3 and in conse- quence erection of false ceiling had already started and was nearing completion; that the balance 484 Sq. Meters of panels was lying at site as no further site was made available to the plaintiff and no further material was also delivered at site; that the plaintiff was paid a total sum of Rs. 5,40,540. 00 towards running bills and their remains a balance of Rs. 110,881. 88 due to the plaintiff from defendant No. 1 towards the work already executed and completed by the plaintiff for defendant No. 1 which is still payable by defendant No. 1, that there was a devastating fire in the fabrication building around 4th June, 1986 and extensive damage was caused to the building and in view thereof defendant No. 1 suggested alternative type of Multipurl Panel involving a slight increase in the cost over Multipurl P-3 Penals vide its letter dated 21st July, 1986; that the plaintiff informed defendant No. 1 vide its letter dated 4th July, 1986 that approximately 2000 sq. meters of Multipurl P-3 Panels were ready but defendant No. 1 vide its letter No. BR/nd/667/5833 dated 30th July, 1986 informed the plaintiff that due to technical reasons and also due to increase in price NIDC/bel have decided not to use Multip
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
