EMCO LIMITED Vs. MALVIKA STEEL LIMITED & ORS.

JUDGEMENT

(1.) THE subject suit has been filed by the plaintiff -company M/s. EMCO Limited for declaration and permanent injunction. Though there are three defendants in the suit, the relief of injunction is claimed against the defendant No. 2 for preventing it from encashing the bank guarantee issued by the defendant No. 3 -Dena Bank. The bank guarantee was issued on the request of the defendant No. 1 by the defendant No. 3 and of which the defendant No. 2 is the beneficiary. The facts of the case are that the defendant No. 1 placed a purchase order upon the plaintiff for supply of various transformers. The purchase order is dated 31.10.1996 and the same was for design, engineering, manufacture, supply, supervision of erection, testing and commissioning nine Nos. 12.5/15 MVA, 33/6.9 KV transformers alongwith mandatory spares. The transformers were to be supplied originally under three lots on or before April, 1997, May, 1997 and June, 1997. The disputes in the present case pertain to the supply of two transformers with the mandatory spares under the second lot. There were various amendments to the purchase order with respect to extension of time for supply of transformers and for the purpose of present judgment it is not required to refer to all such amendments except the amendment dated 18.11.1998 by which the supply of second lot was to be completed by 31.7.1998 and thereafter which period was extended upto 31.3.1999. In order to secure the performance of the contract, the plaintiff had to and therefore it got issued a performance bank guarantee from the defendant No. 3 in favour of the defendant No. 2. Actually the beneficiary would have been defendant No. 1 who placed the purchase order, however, on the agreement between the defendant Nos. 1 & 2, the defendant No. 2 became the beneficiary. The bank guarantee in question is the bank guarantee dated 8.10.1998 for a sum of Rs. 8.5 lacs. The validity period of this bank guarantee was upto 31.5.2000. This bank guarantee was invoked by the defendant No. 2 by its letter dated 26.5.2000 and which has been challenged in the present suit on the ground that the said invocation is fraudulent. The invocation is said to be fraudulent inasmuch as the plaintiff claims to have duly supplied the two transformers and the mandatory spares which pertained to second lot of two numbers of transformers to be supplied under the purchase order dated 31.10.1996.

(2.) THE subject suit has thus been filed claiming the reliefs of declaration and injunction and the main relief in which is that the subject bank guarantee dated 8.10.1998 is void on account of fraudulent conduct of the defendant No. 1 and hence no payment under the said bank guarantee should be made by the defendant No. 3 to the defendant No. 2.

(3.) THE defence of the defendant No. 2 is that the bank guarantee has been invoked in terms of the requirement of the bank guarantee inasmuch as the defendant No. 1 is guilty of breach of contract and that the plaintiff by means of the letter dated 22.12.1999 had been informed by the defendant No. 1 that the plaintiff had committed a breach of contract by failing to supply the spares/lose items as stated in the said letter. It is therefore claimed by the defendant No. 2 that on account of breach of contract by the plaintiff, the defendant No. 2 was entitled to invoke and seek encashment of the bank guarantee as per such term of the bank guarantee which so provided for encashment on account of breach.