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PETITIONER: HINDUSTAN STEEL WORKERSCONSTRUCTION LTD.

       Vs.

RESPONDENT: G.S. ATWAL & CO. (ENGINEERS)PVT. LTD.

DATE OF JUDGMENT13/09/1995

BENCH: VERMA, JAGDISH SARAN (J) BENCH: VERMA, JAGDISH SARAN (J) PARIPOORNAN, K.S.(J)

CITATION:  1996 AIR  131            1995 SCC  (6)  76  JT 1995 (7)    26        1995 SCALE  (5)352

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T Paripoornan, J.      Special leave granted. 2.   The appellant  herein  was  the  respondent  in  Matter No.1268 of  1984, an  application filed by the respondent in this appeal  under Section  41 of  the Arbitration  Act. The appellant and  the responent entered into 11 contracts dated 21.8.1979 whereby  the respondent herein was to construct 11 schools in  Nalut, Libya  at a cost of LD 2,437,525.000. The United Commercial Bank, Calcutta (hereinafter referred to as ‘Bank’) gave  two Bank Guarantees to the appellant on behalf of the respondent. The first is dated 16.8.1979 for a sum of Rs. 6.50  lacs (No.  350/79) renewed  on 4.5.1982, 10.5.1983 and 3.5.1984 whereby the original date expiring on 15.5.1982 was extended  from time to time. The other Bank Guarantee is for a  sum of  Rs.32.50 lacs  (No.399/79) dated  10.10.1979, renewed on  10.6.1981,  9.7.1982,  22.2.1983  and  7.7.1983, whereby the  date of  expiry, 10.7.1981,  was extended  from time to  time.  The  Bank  renewed  the  Guarantees  on  the instructions of the respondent. 3.   It is  seen that  disputes arose  between the appellant and respondent  regarding the  performance of  the  contract resulting in  a reference to arbitration. It is further seen that  the   reference  is   still  pending.  While  so,  the respondent prayed  to court  for the  issue of  a  grant  of injunction to restrain the appellant from encashing the Bank Guarantees aforesaid.  By an order dated 29.8.1988 a learned single Judge  of the  Calcutta  High  Court  restrained  the appellant by  an order of injunction from encashing the Bank Guarantees, bearing No.350/79 dated 16.8.1979 (Rs.6.50 lacs) and No.  399/79 dated  10.10.1979 (Rs.32.50 lacs), furnished by the  Bank to the appellant. The learned single Judge took the  view   that  as   against  the  agreement  between  the respondent and  the Bank,  that the Guarantee No.399/79 will be for  only mobilisation  advance, the  bank had issued the

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Mobilisation Advance-cum-Performance  guarantee in favour of the appellant  in a standard form, which is unjustified. The learned single  Judge also  took  the  view  that  Guarantee No.350/79 dated  16.8.1979 is  a Performance  Guarantee  and before invoking  the same  the appellant  should assess  the quantum  of   loss  and   damages  and  should  mention  the ascertained figure in the letter of invocation and, if it is not so  done,  the  Guarantee  could  not  be  invoked.  The appellant has  come up  in appeal  from the  aforesaid order after obtaining special leave. 4.   We heard  counsel. The  Bank Guarantee  No.350/79 dated 16.8.1979 for Rs.6.50 lacs is available at pages 36 to 39 of the paper  book (Volume  I), and  Bank  Guarantee  No.399/79 dated 10.10.1979  for Rs.32.50 lacs is available at pages 40 to 45  of  the  paper  book  (Volume  I).  There  is  slight variation in  some of  the clauses  of the  above  said  two Guarantees. Substantially the the two Bank Guarantees are of same import. We will only quote clauses 1,4 and 5, appearing at pages 41 and 42 of the paper book (Volume I), of the Bank Guarantee No. 399/79 dated 10.10.1979:-      "1.  In consideration  of  the  Creditor      M/s. Hindustan  Steelworks  Construction      Limited, Calcutta,  agreeing to  make to      the  "DEBTOR:   M/s.  G.S.Atwal   &  Co.      (ENGINEERS)  P.   LTD.  at  Calcutta,  a      Mobilisation Advance of Rs.32.50 (Rupees      thirty  two  lakhs  and  fifty  thousand      only) upto a maximum of the value of the      contracts  under  the  said  Agreements,      against  Bank  Guarantee  in  favour  of      Creditor by  the United Commercial Bank,      Calcutta. SURETY United Commercial Bank,      Calcutta  hereby   guarantees  that  the      contractor   will   duly   perform   the      services in  accordance  with  the  said      terms and  conditions  under  the  above      said  Agreements,   failing  which   the      Surety    does    unconditionally    and      irrevocably agree  and undertake  to pay      to the  Creditor (Principal)  on  demand      such amount or amounts as the Surety may      be called  upon to  pay to the aggregate      of Rs.32.50 (Rupees thirty two lakhs and      fifty thousand only)."      "4.  On account of non-fulfilment of the      Contractual    obligations     by    the      Associate, the  Surety shall,  on simple      demand  from   the  Creditor,   pay   at      Calcutta within 48 hours to the Creditor      the sum  under Clause  1 above,  without      demur and without requiring the Creditor      to invoke  any legal  remedy that may be      available to  them to  compel the Surety      to  pay  the  same,  even  if  Associate      consider such  demand  of  the  creditor      unjustified."      "5.  The  Surety   further  agrees   and      declares that the Creditors shall be the      Sole Judge of and as to whether the said      Associate has  committed any  breach  of      any of  terms and conditions of the said      contract  and   the  extent   of   loss,      damages,  costs,  charges  and  expenses      caused to  or suffered by or that may be      caused to  or suffered  by the  Creditor

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    (Principal) on  account thereof  and the      decision  of  the  Creditor  (Principal)      that the  said Associate  has  committed      such breach  as and  as to the amount or      amounts of loss, damages, costs, charges      and expenses caused to or suffered by or      that may be caused to or suffered by the      Creditor (Principal)  from time  to time      shall be final and binding on us."                           (emphasis supplied) 5.   It  is  common  ground  that  at  the  request  of  the respondent the  Bank has  furnished Bank  Guarantees to  the appellant. The respondent is the beneficiary. In the dispute pending  for   adjudication  in   arbitration,  between  the appellant and  the respondent,  the Bank is not a party. The principles to be borne in mind by the Court in the matter of grant  of   injunction  against   enforcement  of   a   Bank Guarantee/Irrevocable Letter  of Credit  have been laid down in a  catena of decisions of this Court. We have referred to the said  principle in  Larsen & Toubro Ltd. vs. Maharashtra State Electricity  Board and ors., Civil Appeal No......./95 (arising out  of SLP (C) No. 18378 of 1994), which was heard along with  this appeal.  It is  unnecessary to  restate the said principles.  Suffice it  to say  that in  the  case  of confirmed Bank Guarantees/Irrevocable Letters of Credit, the Court will not interfere with the same unless there is fraud and irretrievable damages are involved in the case and fraud has to be an established fraud. 6.   On a persual of the relevant clauses of the Guarantees, it  is   evident  that  the  Bank  has  unconditionally  and irrevocably agreed and undertaken to pay to the appellant on demand the  sums specified  therein. It is further seen that the  amount   should  be  paid  without  demur  and  without requiring the  creditor (the  appellant) to invoke any legal remedy and  it is  further specifically  provided  that  the appellant shall  be the  sole judge of and as to whether the respondent, a  party to  the  contract,  has  committed  any breach and the extent of the loss and damages etc. caused to the appellant.  It  is  stated  that  the  decision  of  the appellant as to the outstanding amount due will be final and binding. A  look at  the particulars contained at page 83 of the paper  book (Volume  I) shows that the appellant has put forward a  plea that  LD 36,986  is due  to it on account of security deposit  and LD 11,37,627 is the balance due, to be recovered by  the appellant.  One Libyan Dinar is equivalent to Rs.27/-  approximately and  so the  amount  due  will  be approximately Rs.6.50  lacs and  Rs.32.50 lacs respectively, which are covered by the Guarantees. We are of the view that the Guarantees  furnished by  the Bank  to the appellant are unconditional and  the appellant is the sole judge regarding the question  as to  whether  any  breach  of  contract  has occurred and,  if so,  the amount of loss to be recovered by the appellant  from the  respondent. The  entire dispute  is pending before  the Arbitrator.  Whether and  if so, what is the amount  due to the appellant is to be adjudicated in the arbitration proceeding.  The order  of  the  learned  single Judge proceeds  on the  basis that  the amounts claimed were not or  cannot be  said to  be due and the Bank has violated the understanding  between the  respondent and  the Bank  in giving  unconditional   Guarantees  to  the  appellant.  The reasoning of  the learned single Judge to hold that the Bank had issued  a Guarantee in a standard form, covering a wider specturm than agreed to between the respondent and the Bank, cannot be  a reason to hold that the appellant is in any way fettered  in  invoking  the  unconditional  Bank  Guarantee.

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Similarly, the  reasoning of  the learned  Single Judge that before invoking  the  Performance  Guarantee  the  appellant should assess  the quantum  of loss  and damages and mention the ascertained  figure, cannot  be put  forward to restrain the appellant  from invoking the unconditional Guarantee. As stated, the claim of the appellant, regarding the balance to be recovered  on  account  of  security  deposit  and  other outstanding advances, is not less than the amount covered by the Bank  Guarantees. In  this view  of the  matter, we hold that  the   learned  Judge   acted  illegally   and  without jurisdiction, in  affirming the  interim order of injunction against the appellant restraining it from enforcing the Bank Guarantees till disposal of the Arbitration proceedings. The order dated  29th of  August, 1988,  passed by  the  learned single Judge, is set aside and this appeal is allowed. There shall be no order as to costs.