The invocation of bank guarantees is enforceable unless a prima facie case of fraud or irretrievable injustice is established.

1. This appeal is directed against the order of the learned Single Judge dated 20th December, 1994 rejecting the prayer of the appellants M/s. Dodsal Limited for an injunction restraining the respondent No. 1, Krishak Bharati Cooperative Limited, from invoking the bank guarantee and respondent No. 2, the State Bank of India, from performing the same.

2. Briefly stated, the material facts of the case are as follows : The appellants M/s. Dodsal Limited had entered into a contract with the respondent No. 1, Krishak Bharati Co - operative Ltd., for laying pipe lines. In terms of the contract, a performance guarantee for Rs. 35,75,888/- was given by the appellants to respondent No. 1. A further bank guarantee was given by the appellants to respondent No. 1 for the World Bank advance of Rs. 4.57 crores. The performance guarantee stood discharged in due course. The bank guarantee for advance payment, however, subsisted, though in course of time the amount thereof came down to Rs. 13,20,03,147/-. By its letter dated 22nd August, 1992, the respondent No. 1 lodged its claim for encashment of the above bank guarantee as per clause 1 read with clause 10 of the bank guarantee for a sum of Rs. 1,11,29,059/-. A copy of the said letter was also sent to the appellants. Later, the bank guarantee was invoked by the respondent No. 1 by its telex message dated 25th January, 1993. In the said telex message, it was stated that the claim for encashment was on account of outstanding advance / claims under the contract against the appellants M/s. Dodsal Limited as per cls. 1, 5, 9 and 10 of the bank guarantee. The appellants thereupon filed a suit in this Court, being Suit No. 599 of 1993, for permanent injunction against the respondent No. 1 from invoking the bank guarantee and against the bank from performing the same. A notice of motion was also taken out in the said suit for interim order which was rejected by the learned single Judge. Hence this appeal.

3. We have heard the learned counsel for the appellants Mr. S.K. Cooper, who submits that the respondent No. 1 is not entitled to invoke the bank guarantee for a sum of Rs. 1,11,29,059/-. According to him, the bank guarantee can be invoked only for a sum of Rs.38,75,654/- which was the amount of outstanding advance. The contention of the appellants is that the bank guarantee did not cover loss of interest on advance. Mr. Cooper, therefore, submits that in that view of the matter, the invocation of the bank guarantee by the respondent No. 1 in the instant case is outside the scope and ambit of the bank guarantee and fraudulent. Mr. Tulzapurkar, learned counsel for respondent No. 1, vehementaly opposes the above submission of the counsel for the appellants. According to him, the above submission of Mr. Cooper is even factually incorrect. Our attention was drawn in this connection to Exh. 5 (at page 65 of the paper book) by which the original bank guarantee was extended for a sum of Rs. 1,30,03,147/- and to Exh. 15 (at page 79 of the paper book) which shows how the above amount had been arrived at. We have perused the above exhibits. Exhibit 15 clearly shows that the amount of Rs. 1,30,03,147/- was arrived at by including the interest recoverable on the amount of outstanding advance. Mr. Tulzapurkar submits that on the face of the above documents, there is no basis or justification for the appellants to contend that the bank guarantee did not cover interest on outstanding amounts. The learned counsel further submits that even if there is a dispute about the amount payable by the appellants to the respondent No. 1, that would not justify grant of injunction restraining the respondent No. 1 from invoking the bank