A Bank Guarantee cannot be invoked if there is no loss to the beneficiary and no claim by the foreign buyer.

( 1 ) THIS appeal is directed against the order passed on the application of the plaintiff-appellant praying for an injunction to restrain the State Trading Corporation of India and another from enchashing a Performance Bond/bank Guarantee dated 1st May. 1985. for the sum of Rs. ll,70,000. 00. This Bank Guarantee was issued by the Punjab and Sind Bank infurtherance of a contract between the plaintiff and the State Trading Corporation. There was a contract to supply 7,500 M. T of Grade b Indian Basmati Rice between the State Trading Corporation and the Abu Dhabi Municipality. The contract between the plaintiff and the State Trading Corporation was to supply 3,000 M. T. to the foreign buyer, apparently in furtherance of the original contract. The Bank Guarantee was invoked by the plaintiff on 15th June. 1985. In order to prevent the enchshment of the Guarantee, the present Suit was instituted along with was filed an application under Order 39, Rules 1 and 2 of the Code of Civil Procedure praying for an ad-interim injunction.

( 2 ) THE ad-interim injunction was initially granted by the learned Single Judge (Wadbwa J.), but at the final hearing, the injunction was discharged by M. K. Chawla J.

( 3 ) IT is the case of the appellant that the contract was frustrated as a result of the notification dated 15th May, 1985. and thus became impossible of performance. It is also claimed that the State Trading Corporation did not suffer any loss due to non-performance and thus the Bank Guarantee cannot to encashed.

( 4 ) THE contract contained an arbitration clause allowing for disputes to be referred to arbitration. According to the plaintiff, the contract was frustrated because the Government of India issued a notification dated 15th May, 1985, increasing the minimum export price of Basmati Rice under O. G. L.-3 for Rs. 6,500. 00 to Rs. 7,500. 00 , and therefore, the contract which was at a lower price could not be carried into effect. The claim, therefore, is that the State Trading Corporation cannot enforce the imdemnity bond and reliance was placed on a judgment of the Supreme Court reported as Union of India and others v. C. Darnani and Co. and others. AIR 1980, SC 1149. The learned Single Judge thought that this matter had to be decided by arbitration, and therefore, did not take this into consideration. However, it appears that the written statement was filed in the suit along with an application under Section 34, so the suit has not yet been stayed and there is no reference to arbitration the Court has the power to pass interim orders even under the Arbitration Act. We cannot agree with the learned Single Judge that the Court has no jurisdiction.

( 5 ) THE next question is whether the State Trading Corporation can encash the Bank Guarantee when they have suffered no loss and there is no claim by the Abu Dhabi Municipality based on the original contract. The learned Single Judge referred to the clause for Bank Guarantee in the original contract and the terms of the Bank Guarantee and came to the conclusion that there were two conditions required for encashing the Bank Guarantee- (a) the plaintiff should have committed a default in the performance of the contract and secondly, the Corporation should submit a certificate to the Bank which would be final and conclusive and binding on the Bank. The learned Single Judge referred to two judgments- Texmaco Ltd. v. State Bank ofindia and others, A. I. R. 1979 Calcutta 44 and Harprashad and Co. Ltd. v. Sudarshan Steel Rolling Mills and others, 1985 (58) Company Cases 531, to hold that there was an absolute right to enforce the Bank Guarantee.

( 6 ) WE are of the view that this matter cannot be viewed in this manner. No doubt, the Bank guarantee to, is enforceable when the circumstances so demand the Court will injunct or restrain the encashment thereof. But, each case has to be adjudged on its own circumstances.

( 7 ) LEARNED counsel for the respondent has placed strong e