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Chief Executive Officer, Ministry of Defence, Government of India, Nilgiris, v/s M/S. Gharpure Engineering & Constructions Private Limited, Represented by its Authorised signatory, A. Sathyamurti & Another

    C.M.A. No. 1384 of 2022
    Decided On, 12 September 2022
    At, High Court of Judicature at Madras
    By, THE HONOURABLE MR. JUSTICE M. DURAISWAMY & THE HONOURABLE MR. JUSTICE SUNDER MOHAN
    For the Appellant: M. Vijayan for M/S. King & Partridge, Advocate. For the Respondents: R1, Lilly Francis, R2, No Appearance.


Judgment Text
(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 Corporation ..vs.. Sumac Internationa Ltd., [ (1997) 1 SCC 568 ];

(iii) Dwarikesh Sugar Industries Ltd., ..vs.. Prem Heavy Engineering Works (P) Ltd., and another [ (1997) 6 SCC 450 ];

(iv) Himadri Chemicals Industries Ltd., ..vs.. Coal Tar Refining Co. [ (2007) 8 SCC 110 ].

7. The learned counsel for the first respondent submitted that the learned Judge was justified in granting the order of injunction. The learned District Judge rightly found that the appellant was due to pay a sum of Rs.8,54,11,548/- to the first respondent and they had illegally withheld the payments. The first respondent was not responsible for the delay in commencement of the project. The delay was due to the appellant and because of the delay, the work could be commenced only after 07.02.2020. Within a month of commencement, the Covid restrictions started and their work was adversely affected because of the extraordinary circumstances. The learned counsel further submitted that the law laid down by the Hon'ble Supreme Court in the above referred Judgements by the learned counsel for the Appellant has to be appreciated in the light of the extraordinary circumstances, under which the first respondent had to suffer huge loss on account of the Covid restrictions. The learned counsel for the first respondent relied upon the judgment of the learned Single Judge of this Court in “Gammon – OJSC Mosmetrostroy JV and others ..vs.. Chennai Metro Rail Limited and others” reported in MANU/TN/2876/2015 in support of her submissions to show that the facts of the case can be gone into for the purpose of ascertaining irretrievable injury, if the bank guarantee is invoked. The learned counsel, therefore, prayed for dismissal of the Original Side Appeal.

8. We have given our anxious consideration to the rival submissions made by the learned counsel on either side and also the Judgment relied on by them.

9. It is settled position of law that bank guarantee is an independent and distinct contract and it has no nexus to the terms of the original contract entered into between the parties. The submissions of the learned counsel for the first respondent is based on the alleged violation of the terms of the contract by the appellant by illegally withholding the payments to the tune of Rs.8,54,11,548/-. The learned counsel fairly admits that the first respondent had not made out a case of fraud. The irretrievable injury that is canvassed by the learned counsel for the first respondent is only with regard to the loss that is caused to the first respondent on account of the appellant's violation of the terms of the contract. The learned counsel for the first respondent was unable to impress upon us as to how the bank guarantee's invocation would cause irretrievable injury. In order to establish irretrievable injury, on account of invocation of bank guarantee, the irretrievable injury must be such that there would be no possibility whatsoever of the recovery of the amount from the beneficiary, by way of restitution. In this case, the bank guarantee is sought to be invoked by the Ministry of Defence, Government of India. The first respondent cannot plead that it would be impossible to recover the amount from the Government of India. The Hon'ble Apex Court in Dwarikesh Sugar Industries Ltd., ..vs.. Prem Heavy Engineering Works (P) Ltd., and another reported in (1997) 6 SCC 450 has held as follows:

22. The second exception to the rule of granting injunction, i.e., the resulting of irretrievable injury, has to be such a circumstance which would make it impossible for the guarantor to reimburse himself, if he ultimately succeeds. This will have to be decisively established and it must be proved to the satisfaction of due Court that there would be no possibility whatsoever of the recovery of the amount from the beneficiary. by way of restitution.

10. We find that though the first respondent has pleaded that they have been put to hardship and financial strain, that cannot be the basis for passing an order of injunction against the appellant from invoking the bank guarantee. The Apex Court has repeatedly held that the invocation of bank guarantee cannot ordinarily be interfered with unless the two grounds namely fraud and irretrievable injury are shown, which is independent of the breach or otherwise of the primary contract.

11. In the Judgment relied upon by the learned counsel for the respondent, the learned Single Judge has not considered the judgment of the Hon'ble Apex Court in Dwarikesh Sugar Industries Ltd., (cited supra). Therefore, we are unable to accept the view taken by the learned Single Judge.

12. Further the Apex Court in Dwarikesh Sugar Industries ltd. vs. Prem Heavy Engineering Works (P) Ltd reported in (1997) 1 SCC 568 has deprecated the practice of the Court granting injunction restraining the encashment of the Bank guarantees in no uncertain terms. The relevant paragraphs of the judgment is extracted hereunder:-

“... 30. We are constrained to make these observations with regard to the manner in which the High Court had dealt with this case because this is not an isolated case where the courts, while disobeying or not complying with the law laid down by this Court, have at times been liberal i

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n granting injunction restraining encashment of bank guarantees. 31. It is unfortunate that notwithstanding the authoritative pronouncements of this Court, the High Courts and the courts subordinate thereto, still seem intent on affording to this Court innumerable opportunities for dealing with this area of law, through by this Court to be well settled.” 13. The ratio laid down by the Hon'ble Supreme Court in the Judgement relied upon by the learned counsel for the Appellant squarely applies to the facts and circumstances of the present case. 14. In these circumstances, since there is no fraud or irretrievable injury caused to the first respondent, the question of injuncting encashment of Bank Guarantee does not arise. Therefore, we are of the considered view that the order passed by the learned District Judge is liable to be set aside. Accordingly the order passed by the learned District Judge, the Nilgiris in A.O.P.No.13 of 2022 is set aside. The Civil Miscellaneous Appeal stands allowed. No Costs.
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