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1999 Supreme(Online)(Ker) 1346
KERALA HIGH COURT
P. A. Mohammed, G. Sivarajan, JJ.
M/s. Geo-Tech Constructions Co. Pvt. Ltd. – Appellant
Versus
M/s. Hindustan Steel Works Construction Ltd. – Respondent
O.S. No. 236 of 1998 | LA. No. 1908 of 1998
The court established that bank guarantees are independent contracts that cannot be restrained from invocation without evidence of established fraud or irretrievable injustice.
Headnote:(A) Indian Contract Act, 1872 - Section 126 - Bank guarantees issued for performance of contract - Dispute over liability to pay contribution under Kerala Construction Workers Welfare Fund Act - Appellant sought temporary injunction against invocation of guarantees - Court held that bank guarantees are independent contracts and invocation cannot be restrained without established fraud or irretrievable injustice. (Paras 7, 17, 34)
(B) The court affirmed the principle that mere disputes regarding underlying contracts do not provide grounds for injunction against bank guarantees, which must be honored unconditionally. (Paras 8, 24)
Facts of the case:
Appellant, a contractor, completed work but was pursued for payments under the Fund Act, leading to the invocation of bank guarantees totaling Rs. 15 lakhs. The Appellant claimed they had no liability, alleging fraud in the request to invoke guarantees. (Paras 3, 10)
Findings of Court:
The court found no prima facie case of fraud or irretrievable injustice, affirming the independence of the bank guarantees from underlying contractual disputes. (Paras 28, 36)
Issues: Whether the Appellant was liable under the Fund Act and whether the invocation of bank guarantees could be restrained.
Ratio Decidendi: The court concluded that the invocation of bank guarantees could not be restrained absent a clear case of fraud known to the bank or demonstrable irretrievable harm; any interpretation of the contractual terms or liability must remain subject to future adjudication and does not provide grounds for injunction. (Paras 1, 19)
Result: Appeal dismissed.
| Table of Content |
|---|
| 1. dispute involves bank guarantees and performance contract. (Para 1 , 2 , 3) |
| 2. arguments concerning indemnification and liability under welfare fund contribution. (Para 4 , 10) |
| 3. court's analysis of bank guarantees' sanctity and contract obligations. (Para 5 , 7 , 11 , 12) |
| 4. conditions for granting injunctions against bank guarantees. (Para 8 , 17 , 30) |
| 5. conclusion on the dismissal of appeal against injunction. (Para 28 , 36) |
1. The cardinal dispute for adjudication in this appeal revolves around the invocation of Bank guarantees executed in terms of an agreement for performance of a works contract. The question is whether the appellant is entitled to a temporary injunction restraining the respondents from enforcing the Bank guarantees executed by the second respondent on behalf of the appellant in favour of the first respondent. The plaintiff, M/s. Geo-Tech Constructions Co. Pvt. Ltd. (hereinafter referred to as 'Geo-Tech') is the appellant and the first respondent M/s. Hindustan Steel Works Construction Ltd. (hereinafter called by acronym 'H.S.C.L.') is the first respondent in the suit. The State Bank of Travancore, M.G. Road Ernakulam is the second defendant. The appeal is directed against the order of the First Additional Sub Judge, Ernakulam in an interim application, LA. No. 1908 of 1998 in O.S. No. 236 of 1998.
2. The above suit was filed praying for a decree on the following terms
"(a) to declare that the first defendant has no right or authority whatsoever to invoke bank guarantee Nos. B G No. 41/94-95, dated 17th November 1994 for Rs.5 lakhs, BG No.42/94-95, dated 17th November 1994 for Rs. 5 lakhs, BG No.43/94-95, dated 17th November 1994 for Rs. 5 lakhs issued by the second defendant and that the second defendant has no right or authority whatsoever to make any payment of pursuant to the same as that the said Bank stands discharged.
(b) to grant a permanent prohibitory injunction restraining the first defendant from invoking Bank guarantees Nos. BG No.41/94-95, dated 17th November 1994, B G No. 42/94-95, dated 17th November 1994, BG No. 43/94-95, dated 17th November 1994 issued by the second defendant and the second defendant from make any payment pursuant to the same.
(c) to grant such other reliefs requested for by the plaintiff and this Hon'ble Court may deem fit and proper".
Pending the suit the Geo-Tech filed LA. No. 1908 of 1998 praying for a temporary injunction restraining the H.S.C.L. from invoking the above said Bank guarantees and the Bank from making any payment pursuant to it. The said interim application has been dismissed by the court below on the ground that Geo-Tech failed to make out a prima facie case. Hence this appeal.
3. The factual situation behind the suit as well as the interim application as reflected from the plaint and the affidavit filed by the appellant is analysed hereunder in a condensed form.
The H.S.C.L. was the contractor for the work of 'Pile Foundation', 'Pile Caps', Site development works, etc., in respect of the 'International Stadium' at Kaloor, Cochin owned by the Greater Cochin Development Authority. As per the Memorandum of Understanding arrived at between the H.S.C.L. and Geo-Tech, the latter will be entrusted with the execution of the above work on successful finalisation of the tender and Geo-Tech will be the sub contractor for executing it and a contract of agreement was executed between Geo-Tech and the H.S.C.L., in consequence of which the H.S.C.L. awarded the work to the Geo-Tech as per letter of intent No. E.D.M./122 Cochin/94/292, dated 7th April 1994. The contract work was successfully completed by the Geo-Tech on 16th April 1996 and the defect liability period was over on 30th November 1996 and the security deposit was released to the Geo-Tech by the H.S.C.L. Consequently the H.S.C.L. released the retention amount when the Geo-Tech executed three Bank guarantees for Rs. 5 lakhs each. Thus the total Bank guarantee for Rs. 15 lakhs has been issued by th
