w w w . L a w y e r S e r v i c e s . i n

M/s Su-Kam Power Systems Ltd v/s M/s. Yog Systems India Ltd. & Others

    IAs.7384 of 2006 and 7958 of 2006 in CS(OS) No.1368 of 2006
    Decided On, 29 August 2006
    At, High Court of Delhi
    For the Plaintiff : Sanjiv Puri, Advocate. For the Defendants: D1 P.K.Agarwal, D2 Ajay Monga, Advocate.

Judgment Text
Pradeep Nandrajog, J.

1. Suit seeks an injunction against defendant no. 1 from encashing bank guarantee issued in it's favour by defendant no. 2 at the asking of the plaintiff.

2. IA.No.7384/06 filed by the plaintiff prays for an interim injunction till suit is decided. Since plaintiff obtained an ex- parte ad-interim injunction on 06.07.2006, defendant has filed IA.No.7958/06 praying that injunction granted to the plaintiff be vacated.

3. The present order disposes of both the applications.

4. It is a case of fraud pleaded by the plaintiff.

5. According to the plaintiff, defendant never intended to supply the goods and without supplying goods, attempted to invoke the bank guarantee.

6. Why does the plaintiff say so? For, according to the plaintiff, defendant no.1 approached it representing that it was manufacturing transformers and offered to supply the same to the plaintiff. Since plaintiff required transformers, it asked defendant no. 1 to submit its quotation. On 26.05.2006 defendant no. 1 submitted a quotation for 5000 pieces. As per the quotation, the transformers were offered for delivery at plaintiff's factory at Baddi, District Solan Himachal Pradesh. Delivery schedule offered was one week from the date of purchase order. Mode of payment sought was by means of payment through documents to be negotiated by the bank. Payment had to be secured by a bank guarantee. On 26.05.2006, plaintiff accepted the offer made by the defendant and indicated that 5000 transformers would be supplied in 10 lots each having 500 transformers from 1st June, 2006 to 10th June, 2006.

7. Defendant No. 1 wanted a bank guarantee to be issued in its favour before supplies could be effected and accordingly on 01.06.06 plaintiff submitted a bank guarantee issued by defendant no.2 in favour of defendant no. 1. Sum covered by the bank guarantee was Rs. 60 lacs.

8. According to the plaintiff, notwithstanding the fact that the defendant no.1 offered to effect delivery within one week from the date of purchase order and notwithstanding that the bank guarantee was issued on 1st June, 2006 and notwithstanding that the purchase order was placed on 26th May, 2006, supplies were not effected. On 11th June, 2006, a repeat purchase order was issued requiring delivery to be effected from 13th June, 2006 to 23rd June, 2006. In this purchase order, terms of payment notified were : '10 days from the date of lorry receipt.'

9. Plaintiff states that as per revised purchase order, 5000 transformers had to be supplied by 23.06.2006 but only 382 pieces were supplied in respect whereof Rs.4,54,488/- was made to the defendant no. 1.

10. According to the plaintiff, without effecting deliveries, on 5th July, 2006, defendant no. 1 sought to invoke the bank guarantee. According to the plaintiff, since delivery was not being effected, on 24.06.06, it had cancelled the purchase order.

11. Stand taken by the defendant is that on 12.06.2005 it had supplied 600 transformers to the plaintiff for which no payment came within 10 days of issue of the lorry receipts. It is stated that the plaintiff has wrongly stated that only 382 transformers were supplied. Defendant states that the plaintiff had no cause to cancel the purchase order and thus it was entitled to invoke the bank guarantee.

12. Denying any fraud, learned counsel for the defendant no. 1 urged that it is settled law that a bank guarantee constitutes an independent contract between the issuing bank and the recipient and de-hors the main contract between parties, invocation of bank guarantee has to be viewed in light of the language of the bank guarantee. Learned counsel urged that the bank guarantee in question is an unconditional guarantee.

13. Material part of the bank guarantee reads as under:-

“NOW THEREFORE, IN CONSIDERATION OF THE PREMISES, and at the request of the Buyer, we Standard Chartered Bank (the Bank) do hereby agree and undertake to pay to the Seller the amounts not exceeding Rs. 60,00,000/- (Rupees Sixty Lakhs Only) without any delay, protest or demur and on first demand from the Seller to the bank. The bank categorically state and undertake that when this bank guarantee is invoked by the Seller, no reason need be given by the Seller in the invocation letter and it is clearly understood that the Bank would honor the bank guarantee as invoked by the Seller and as stated above on first demand without delay, protest or demur, that means forth with it is expressly agreed that the Seller shall be at liberty to act as though, the Bank are the principal debtor in case of the default by the buyer. However, liability of the Bank under this Guarantee shall be restricted to an amount not exceeding Rs. 60,00,000/- (Rupees Sixty Lakhs only) and shall not extend beyond 30.11.2006 unless claim or demand is made under this guarantee on or before the said date.”

14. Learned counsel for the defendant cited the following authorities:-

i) AIR 1991 SC 1994 General Electric Technical Services Vs. M/s Punj Sons Pvt. Ltd.

ii) AIR 1997 SC 3450 Fenner (India) Ltd. Vs. Punjab and Sindh Bank.

iii) AIR 1996 SC 2268 Hindustan Steel Works Construction Ltd. Vs. Tara Pore and Co.

v) AIR 1996 SC 131 Hindustan Steel Workers Construction Ltd. Vs. G.S.Atwal and Co.

v) AIR 1996 SC 334 Larsen and Touvero Ltd. Vs. Mseb and Ors.

vi) AIR 1996 SC 445 NTPC Vs. M/s Flowmore Pvt. Ltd.

vii) AIR 1994 SC 2778 STC Vs. Gemsons Clothing Corporation.

viii) AIR 1994 SC 626 Svenska Handelsbanken Vs. M/s Indian Charge Chrome and Ors.

ix) AIR 1997 SC 1644 U.P.State Sugar Corporation Vs. M/s Sumac International.

x) AIR 1997 SC 2477 Dwarikesh Sugar Industries Vs. Prem Heavy Engineering Works.

xi) 2003 (8) SCC 636 FCI Vs. Surana Commercial Company.

xii) AIR 2003 SC 3823 NHAI Vs. M/s Ganga Enterprises.

xiii) AIR 2003 SC 1786 Daewoo Motors Vs. UOI.

15. Learned counsel for the defendant No. 1 could have cited a 100 more judgments. But for what purpose? Duplication does not strengthen a point. Lies repeated time and again does not become truth.

16. Law is clear. Where fraud is alleged and prima facie established, an independent ground is available for obtaining an injunction again invocation of a bank guarantee. It is trite that a fraud vitiates the entire transaction. Of course, fraud would have to be pleaded with clarity and prima facie established for a party to obtain injunction.

17. When fraud is pleaded, terms of the bank guarantee become irrelevant.

18. In Dwarikesh Sugar Industries' case (Supra) observations of Sir John Donaldson in the report published as (1984) 1 of All ER 351 Bolivinter Oil Vs. Chase Manhattan Bank were noted with approval. The said observations are as under:-

“The wholly exceptional case where an injunction may be granted is where it if proved that the bank knows that any demand for payment already made or which may thereafter be made will clearly be fraudulent. But the evidence must be clear both as to the fact of fraud and as to the bank's knowledge. It would certainly not normally be sufficient that this rests on the uncorroborated statement of the customer, for irreparable damage can be done to a bank's credit in the relatively brief time which must elapse between the granting of such an injunction and an application by the bank to have it charged.”

19. In more than half the decisions cited by the learned counsel for the defendant, view taken is as aforesaid.

20. In the report published as 1988 (1) SCC 174 U.P.Cooperative Federation Ltd. Vs. Singh Consultants, it was observed that banks obligation should not be extended to protect the unscrupulous seller. However, a caveat was lodged that the fraud talked about was a fraud of an egregious nature.

21. I need not analyze facts in detail for the reason, on 04.08.2006, I recorded the statements of Sh. Parakh Gupta, Director of defendant no. 1 one Sh. Beer Singh.

22. Beer Singh is the sole proprietor of Jai Kisan Tempo Association to whom defendant No. 1 claimed to have entrusted 600 pieces of transformers for onward supply to the plaintiff.

23. Reason why I recorded the statement was that in para 2 of the preliminary objections in the written statement filed by defendant no. 1, it has been pleaded as under:-

“That the plaintiffs have wrongly stated in the suit that the defendants have delivered only 382 pieces f transformers out of the total order of 5000 pieces of transformers and for the said consignment of 382 pieces of transformers, the plaintiffs have made the payment to the defendant no. 1. The fact of the matter is that on 12th of June, 2006 itself, the defendant no. 1 had supplied 600 pieces of transformers. According to the terms of the Purchase Order, the plaintiffs were obliged to make the payment within ten days of the L/R. The plaintiffs have not made the payment in respect of the said consignment of 600 pieces in the sum of Rs.7,13,856/- till date. The plaintiffs have suppressed the material facts from this Hon'ble Court and have not even alleged with regard to the dispatch of the said goods and the non-payment in respect of the said goods. On the contrary, the plaintiffs have wrongly alleged that only 382 pieces of transformers were supplied by the defendant no. 1. In view of the false statement of the plaintiffs, this Hon'ble Court would vacate the injunction order and would not grant any equitable relief to them and dismiss the above suit. The plaintiffs are also liable to be proceeded with for perjury and/or contempt of this Hon'ble Court.”

24. Plaintiff had denied receipt of 600 pieces of transformers.

25. Defendant No. 1 has categorically pleaded that on 12.06.06, it had supplied 600 pieces of transformers. When I was hearing arguments, counsel for the defendant relied upon a lorry receipt issued by Jai Kisan Tempo Transport Association showing that on 12th June, 2006, it had lifted 600 transformers from the factory of the defendant no. 1 at Delhi for delivery to the plaintiff at


26. Counsel for the parties informed that the goods reach Baddi in one day.

27. Counsel for the plaintiff had shown a fax massage dated 23/06/06 form the transporter showing that till 23/06/06, no supply was made.

28. Sh. Beer Singh whose statement was recorded on 04.08.20006 made the following statement:-

I am the sole proprietor of Jai Kisan Tempo Transport Association. Ex.P-1 was faxed by my employee Rajesh to Su-Kam Power Systems Ltd. The fax was transmitted from a PCO nearby my office at Hosiery Complex, NOIDA. The fax message was sent because some information was sought by Su-Kam company. One Mr.Sabharwal had rung up from Su-Kam company. The goods entrusted to us by Yog Systems India Ltd., reference whereof has been made in Ex.P-1, are lying at Karnal. We had informed the defendant that the consignment is lying at Karnal. Information to this effect was given by us to the defendant on or about 24.6.2006. Defendant has told me to keep the goods at Karnal till further instructions.?

29. On same date, Parakh Gupta, Director of the plaintiff made the following statement:-

“I am a director on the Board of defendant No.1. I have brought along with me in court today Shri Bir Singh who is known to me and I identify him. Ex.P-1 was not faxed by us to the plaintiff. I had seen Ex.P-1 for the first time on 23.6.2006 in the office of the plaintiff at Gurgaon as I had gone there in connection with the purchase orders and the payment. I had asked Jai Kisan Tempo Transport Assn. as to why goods in question entrusted to it as a carrier were not delivered. Mr.Bir Singh told me that the tempo carrying the goods had broken down. Letter Ex.P-2 was received by me personally.

Q. In what context plaintiff wrote letter Ex.P-2”

Ans. Su-Kam wanted the bills to be submitted again for payment. At my asking Ex.P-2 was written by the plaintiff to my banker. It is correct that the written statement filed by defendant No.1 has been verified on 22.7.2006. I have signed and verified the written statement.

Q. You have just admitted that on 23.6.2006 it came to your knowledge that the carrier to whom you entrusted the goods for delivery to the plaintiff did not deliver the goods to plaintiff and that it came to your knowledge that goods are lying in Karnal. Why have you not disclosed this fact in the written statement and what is the basis on which you have pleaded that having supplied 600 transformers to the plaintiff amount covered by the bill pertaining to 600 transformers became due and payable on 22.6.2006. What do you have to say in respect of your pleadings mark 'A' to 'A' in para II of the preliminary objections.

Ans. I have no explanation to furnish.”

30. Parakh Gupta was specifically confronted with pleading of defendant no. 1 in preliminary objection no. 2, wherein following has been pleaded:- ?The fact of the matter is that on 12th of June, 2006 itself, the defendant no. 1 had supplied 600 pieces of transformers. According to the terms of the Purchase Order, the plaintiffs were obliged to make the payment within ten days of the L/R.?

31. His answer is that he had no explanation to furnish.

32. It is obvious that the goods have been retained by the transporter and are lying in his godown at Karnal. This information had been given to the defendant no. 1 if not earlier, at least on 24.06.06. In spite thereof, defendant no. 1 has made pleading which are suggestive of the fact that apart form 382 transformers, it has supplied 600 more transformers.

33. I do not agree with the interpretation sought to be urged by Sh. P.K.Agrawal, learned counsel for defendant no. 1 that pleading of the defendant no. 1 are to the effect that it had effected supply meaning thereby put into motion the movement of goods from defendant no. 1 to the plaintiff.

34. As I read the pleadings, defendant no. 1 clearly suggests that 600 pieces were delivered to the plaintiff.

35. But why should I bother about this for the reason fact of the matter remains that as per contract, it was the duty of defendant no. 1 to deliver the goods at Baddi. It's transporter kept the goods at Karnal and informed it about the same. Defendant no. 1 has offered no explanations as to why steps were not taken by it to ensure delivery to the plaintiff.

36. Further, 500 pieces per day had to be supplied from 13.06.06 onwards. Bank Guarantee was to be encashed if within 12 days of issuance of lorry receipt, plaintiff had not made payment to defendant No.1. As noted above, transportation time from Delhi to Baddi is 1 day. It is obvious that parties intended that goods would reach the plaintiff and thereupon payment should be made.

37. Under the circumstances, the submission made by Shri P.K. Agrawal learned counsel for defendant no. 1 that the bank guarantee was irrevocable and contract could not be revoked is irrelevant as facts suggest that the defendant no. 1 was not interested in supplying the transformers.

38. Prima facie, it is a case of fraud committed by defendant no.1. Conduct of defendant no. 1 suggests that defendant no.1 had no intention to effect delivery. Having supplied 382 transformers and received payment for the same, 600 more were handed over to the transporter but to the knowledge of defendant no.1 retained in the godown of the transporter at Karnal. If defendant no.1 had honest intentions, it should have taken the transporter to task. Defendant no. 1 is obliged to effect deliveries at Baddi. It did no do so. There is no material to show that the remaining quantity was dispatched. I note that the entire quantity had to be dispatched by 23.06.2006.

39. On the issue, whether defendant no. 2 was aware of the fraud committed by defendant no.1, suffice would it be to note that on 23.06.06, information was available with the bank that the consignment of 600 pieces of transformers were lying in the godown of the transporter, a fac

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t admitted by Sh. Parakh Gupta in his statement. In it's letter dated 23.06.06 addressed to defendant no. 2 plaintiff informed that the consignment dispatched was lying in the godown of the transporter. 40. Case is made out for confirmation of the ex-parte ad-interim injunction. Needless to state, without effecting supplies, defendant no. 1 wants to illegally enrich itself. Irreparable loss and injury would be caused to the plaintiff if injunction is not confirmed. Balance of convenience lies in favour of the plaintiff. 41. The two applications stand disposed of declining defendant's request to vacate the ex-parte injunction granted. Application filed by the plaintiff is allowed. Ex-parte ad-interim injunction dated 06.07.2006 is confirmed till disposal of the suit. 42. However, the bank guarantee has to be kept alive. But, plaintiff would have to incur expenditure for the same. 43. I have found a prima facie case of fraud attempted to be perpetuated by defendant no. 1. 44. If ultimately, the plaintiff succeeds, defendant no. 1 may be liable to be directed to recompense the plaintiff the cost of keeping alive the bank guarantee. 45. To secure the plaintiff as also to preserve the interest of defendant no. 1, I direct that on defendant no. 1 depositing a sum of Rs. 1 lac in the name of the Registrar of this Court, which amount on deposit would be invested in a fixed deposit, plaintiff would renew and keep alive the bank guarantee for a period of 1 year from the date of the present order. 46. I clarify that the amount of Rs.1 lac would be towards security to the plaintiff, on plaintiff succeeding, for keeping alive the bank guarantee. 47. I award costs in sum of Rs.5,000/- in favour of the plaintiff and against defendant no. 1.