The court affirmed that a bank guarantee is an independent contract, enforceable regardless of disputes over the underlying contract, unless fraud or irretrievable harm is proven.

JUDGMENT :

(Gita Gopi, J.)

1. The appellant is the original plaintiff of Civil Suit No.3184 of 1981 filed before the City Civil Court at Ahmedabad. The challenge is given to the judgment dated 24.01.2002, whereby the suit of the plaintiff was dismissed and was ordered to pay cost to the defendant No.1, while no order of cost was in respect of defendant No.2.

2. The plaintiff before the City Civil Court vide the plaint has stated that it is an existing company under the Companies Act, 1956 and is carrying on business, inter alia as manufacturers of textile processing machinery at Ahmedabad. The plaintiff Company is an actual user of stainless steel plates, sheets and coils and requires imported stainless steel sheets of different qualities or space of different gauges and different sizes.

3. Defendant No.1-Company is carrying on business in different places of India in minerals and metals and also acting as canalising agency under the import policy of the Government of India. Defendant No.2 is a Nationalized Bank and acting as Bankers of the plaintiff.

4. Plaintiff stated that according to the import policy of the Government of India, the Government permits the actual users to import raw materials at times under Open General Licenses or under other licenses. However, in respect of certain items, including stainless steel plates, sheets and coils, the Government has decided that those imports are to be canalised through public sector agencies. As per the plaintiff, the policy lays down requirements of eligible actual users to register their twelve monthly requirements with the canalising agency together with the earnest money, and are required to make an application in a particular form for that purpose. Accordingly, the defendant No.1, therefore, had required the actual user to apply for registration of their requirements of stainless steel plates, sheets and strips every year as per the import policy.

5. The plaintiff stated that they wanted one booking for 25 metric tons of stainless steel, hence, produced one Bank Guarantee on or about 09.05.1979 from defendant No.2 Bank of India in accordance with the form given by defendant No.1, and sent the same to defendant No.1 along with letter dated 11.05.1979.

6. The Bank Guarantee No.60/127 was for a sum of Rs.2,81,250/- at the rate of 25% of the approximate sale value of 11,25,000/- being the total of the 11 items of stainless steel of different gauges, sizes and types, which were required by the plaintiff and were agreed to be imported by the defendant No.1 to be sold to the plaintiff on high seas/ex-jetty basis, the details of the requirements has been noted in the plaint, which reads as under:

7. It is the case of the plaintiff that defendant No.1 had received the letter of plaintiff dated 11.05.1979 of Bank Guarantee and has acknowledged the receipt thereof by letter dated 16.05.1979. The defendant No.1 had agreed to supply various materials as per the booking of the plaintiff and had offered to supply the referred items on high seas/ex-jetty basis in the expected time of Nov