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2009 Supreme(Ker) 768
High Court of Kerala
THE HONOURABLE MR. JUSTICE P.R. RAMAN & THE HONOURABLE MR. JUSTICE P. BHAVADASAN
Jacsons
Veneers
and panels pvt Ltd. Rep by its Director Jacob Thomas Versus State Bank Of Travancore, Represented By Its Chief Manager & Another
FAO.Nos.283 of 2008 & 287 of 2008
Decided on : 18-09-2009
Headnote:
Civil Procedure Code 1908 - Order.XXXIX and Rule. 1 - Suit for injunction - Bank Guarantee - whether it be conditional or unconditional - Whether an injunction can be granted against enforcing a Bank Guarantee ? Held, It could thus be seen that there is a distinction in law between a conditional Bank Guarantee and unconditional Bank Guarantee. In all cases it has been held that normally for injunction against enforcement of Bank Guarantee, there are only two exceptions, i.e., fraud and irretrievable loss or injury where the Bank Guarantee was unconditional or irrevocable. As already noticed in each of the cases, the documents involved have been construed. Therefore the view of lower court that no injunction can be granted against enforcement of Bank Guarantee, whether it be conditional or unconditional does not appear to be correct. As a matter of rule, in a case of unconditional Bank Guarantee, the court may not injunct against encashment, except on establishment of prima facie grounds of fraud or irretrievable loss or injury. It is therefore necessary to construe the document in question and then come to a conclusion whether it is a conditional or unconditional Bank Guarantee and if it is found to be a conditional Bank Guarantee, then the principle laid down in the decision reported in Hindustan Construction Co. Ltd.'s case (AIR 1999 SC 3710) may be attracted - In the result, these appeals are allowed, the impugned orders are set aside and the matter is remanded to the Trial Court for fresh consideration in the light of what has been stated above.
Bhavadasan, J,
These two appeals arise from a common order and hence they are being disposed of together.
2. The plaintiffs had filed I.A. 3085 of 2008 in O.S. 436 of 2008 seeking an interim injunction and an ex-parte order of injunction was granted. On appearance by the respondents, the second respondent fled I.A. 4011 of 2008 for vacating the ex-parte interim order. Both the petitions were heard together and disposed of by a common order. Aggrieved by the said order, the petitioner in I.A. 3085 of 2008 has filed F.A.O.283 of 2008 and F.A.O.287 of 2008 against the order in I.A. 4011 of 2008.
3. Facts absolutely necessary for the disposal of these appeals alone are being referred to. The parties and facts are hereinafter referred to as they are available before the court below.
4. The appellant instituted O.S. 446 of 2008 before the Sub Court, Ernakulam seeking a declaration and prohibitory injunction. The plaintiff is a registered Company and is engaged in the manufacture and supply of veneers, flush doors and MDF and such other materials. They have been in the business for the last thirty years. The first defendant is a Nationalised Bank and the second defendant is another company dealing in real estate and construction business. According to the plaintiff the second defendant in the suit placed orders for flush doors with the plaintiff. The plaintiff had to supply 4731 flush doors with the specifications stipulated by the second defendant Company and an agreement to that effect was entered into between them. Work order was placed by the second defendant Company. The plaintiff states that while placing work orders the second defendant had stipulated certain terms and conditions, which were not acceptable to the plaintiff Company. They in turn while accepting the work order specified their terms and conditions. One of the conditions was that when 40% of the total consideration for the transaction is paid by the second defendant, plaintiff would provide a Bank Guarantee to the tune of Rs.35,00,000/-. There were other conditions regarding the period within which the supply has to be made and regarding the specifications also. Suffice to say that when 40% of the advance amount was paid, Bank Guarantee was furnished by the plaintiff Company. Bank Guarantee was furnished by the plaintiff Company through the first defendant. According to the plaintiff, it appears that for reasons which are not very proper, the second defendant invoked the Bank Guarantee. According to the plaintiff, they were not entitled to do so and therefore they laid the suit seeking a declaration that the amount covered by the Bank Guarantee dated 22.5.2007 issued to the first defendant belongs to the plaintiff and the invocation of the Bank Guarantee by the second defendant is illegal and vitiated by fraud. Consequential injunction was also sought. Along with the suit, it is seen that the plaintiff filed I.A. 3085 of 2008 seeking a temporary injunction. An ex-parte order of injunction was granted in favour of the plaintiff.
5. The respondents entered appearance. The second respondent stoutly opposed the application for temporary injunction and pointed out that it was improper and in fact illegal for the court to injunct the said respondent from enforcing the Bank Guarantee. It was pointed out by them that the first respondent, namely, the Bank, is unconcerned with the terms and conditions of the agreement between the plaintiff and the second defendant and that the first defendant under no circumstance can refuse to honour the Bank Guarantee. It is also pointed out by them that once an unconditional and irrevocable Bank Guarantee has been given by the plaintiff, the plaintiff cannot then later on seek to injunct the second respondent from enforcing the Bank Guarantee for any reason except fraud or irreparable loss or injury.
6. The second defendant in turn also filed I.A. 4011 of 2008 to have the interlocutory application filed by the plaintiff for t
