The main legal point established in the judgment is that the invocation of a bank guarantee cannot be injuncted unless there is an allegation of fraud or irretrievable injury, and that a bank guarantee is an independent and distinct contract.

JUDGMENT

(Prayer: This C.M.A. is preferred under Section 37(1)(b) of the Arbitration and Conciliation Act, 1996 against the order and decreetal order passed by the learned District Judge, Nilgiris, dated 26.04.2022 made in A.O.P.No.13 of 2022.)

Sunder Mohan, J.

1. Challenging the order of injunction restraining the appellant herein from encashing the bank guarantee executed in their favour by the first respondent herein, the appellant is before us.

2. The appellant and the first respondent entered into an agreement on 27.02.2019 and a work order was issued by the appellant to the respondent on 05.03.2019 for providing Sewer Network, constructing, erecting and commissioning of pumping etc., at Wellington Cantonment Board. The first respondent executed a bank guarantee drawn on the second respondent bank to the tune of Rs.2,51,28,677/- in favour of the appellant. Dispute arose between the parties since the appellant did not make payment in terms of the contract to the tune of Rs.8,54,11,548/-, as per the first respondent's version. The contract agreement contains an arbitration clause and the first respondent is taking steps to appoint an Arbitrator to decide the issue. In the mean time, the appellant, claiming that the first respondent had committed breach of its obligations, attempted to invoke the bank guarantee executed by the first respondent.

3. The first respondent, filed A.O.P.No.13 of 2022 on the file of the learned District Judge, the Nilgiris, under Section 9 of the Arbitration and Conciliation Act 1996 praying for an order of injunction restraining the appellant from encashing the bank guarantee. The appellant opposed the said application on the ground that there cannot be an injunction restraining the appellant from invoking the bank guarantee stating that there is a violation in the terms of the contract. The appellant's case before the learned District Judge was that the invocation of bank guarantee and the terms of contract are two different aspects and there cannot be any injunction unless there are allegations of fraud or irretrievable injury caused to the person seeking injunction of the enforcement of bank guarantee.

4. The learned District Judge, after hearing both the parties, found that the issue of fraud cannot be gone into as there are allegations of fraud on either side. As regards irretrievable injury, the learned District Judge found that since the appellant has not paid Rs.8,54,11,548/- to the first respondent, if they are allowed to encash the bank guarantee, it would cause irretrievable injury to the first respondent. No prejudice would be caused to the appellant, if the first respondent is directed to renew the bank guarantee before its expiry and the appellant is injuncted from invoking the bank guarantee pending disposal of the Arbitral proceedings. Therefore, the learned District Judge, granted an order of injunction restraining the encashment of bank guarantee, till the disposal of the main Arbitration Proceedings.

5. Heard Mr.Vijayan, learned counsel for the appellant and Ms.Lilly Francis, learned counsel for the first respondent.

6. The learned counsel for the appellant submitted that there cannot be an order of injunction for invoking bank guarantee as it is settled law that bank guarantee is an independent and distinct contract between the bank and the beneficiary and it has nothing to do with the primary contract between the parties. The invocation of bank guarantee cannot be injuncted unless there is an allegation of fraud or irretrievable injury. The first respondent has not established either fraud or irretrievable injury so as to justify the prayer for injunction. Hence, the learned counsel prayed that the order of injunction has to be set aside. The learned counsel relied upon the following judgments in support of his submissions:-

(i) Ansal Engineering Projects Ltd., ..vs.. Tehri Hydro Development Corporation Ltd., and another [ (1996) 5 SCC 450 ];

(ii) U.P. State Sugar Corporatio