CROMPTON GREAVES Vs. NATIONAL FERTILIZERS

JUDGEMENT

(1.) This is an application filed under Sec. 41(b) read with the Second Schedule of the Indian Arbitration Act, 1940. It has been stated in the application that the petitioner has filed the petition under Sec. 20 of the Indian Arbitration Act in which disputes which has arisen inter-se between the parties have been mentioned. Mr. Kanwal Narain, learned counsel for the petitioner, has vehemently argued that the contract was performed diligently and any delay on account of the performance of contract was on account of non-handing over of the site and other delays caused by the defendant. For that reason he has prayed that this court may grant an injunction against the respondent from encashing the bank guarantee till the disputes between the parties are resolved. This Court on 23.12.1991 granted ex parte order restraining the respondent not to encash the bank guarantee No. 80/87. In support of his arguments, Mr. Kanwal Narain has cited a decision of a Single Judge of this court in the case of Nangia Construction (India) Pvt. Ltd. Vs. National Buildings Construction Corporation Ltd (Rep. as 1990 (2) Delhi Lawyer 403) . On the basis of the reasoning, Counsel has argued that a contract of bank guarantee is different than a letter of credit. He has further argued that in terms of Nangia Construction (India) Pvt. Ltd. case (supra) if any, clauses are invited in a contract of guarantee that will be hit by Sec. 23 of the Indian Contract Act. The next argument of the learned counsel for the petitioner in alternative is that court at this stage has to look at the prima facie consideration on the basis of material placed on record and the equities of the case and to see that no injustice is caused to the petitioner if bank guarantee is not encashed as far as respondent is concerned, his interest is safeguarded by keeping the bank guarantee till the disposal of the suit.

(2.) On the other hand, Mr. V. P. Singh, learned Senior Counsel for the respondent, has argued that there is a catena of decision that bank guarantee and letter of credit are to be treated on the same footing and bank in under an obligation to pay and encash the amount under the bank guarantee irrespective of the terms of contract, performance or non-performance of the contract. Mr. Singh has cited before me a Single Bench decision of this court in the case of Bhasin Associates Limited Vs. Hyundai Heavy Industries Co. Ltd and another (1991 (3) Delhi Lawyer 43) . In this case D. P. Wadhwa, J. after taking note of Nangia Construction India Pvt. Ltd. (supra) discussed the law in relation to bank guarantee for its encashment and summarised the principle of invoking the bank guarantee in the following terms.

(3.) An appeal was preferred against the order of learned Single Judge and the Division Bench of this court in Bhasin Associate Limited Vs. Hyundai Heavy Industries Company Ltd. and another (Rep. in 1991 (4) Delhi Lawyer (DB) 198) , affirms the finding of the learned Single Judge. Similar view has been taken by Arun Kumar, J. in the case of M/s. V.K. Constructions Works Ltd. Vs. Bank of Rajasthan and another, 48 (1992) DLT 468 . In this case the observations referred to by learned counsel for the petitioner has been taken note of by the learned Single Judge and the same has been negatived. Mr. Singh has further cited the case of Swenska Handelsbanken Vs. M/s. Indian Charge Chrome and others ((1994) 1 SCC 502), and argued that the Supreme Court has carved out only two exceptions when an injunction can be issued in relation to the enforcement of the bank guarantee. The Supreme Court in Swenska Handelsbanken case (supra) has laid down that if the party alleges fraud or if an irretrievable injury is caused only in these circumstances an injunction may be issued for encashment of the bank guarantee. The irretrievable injury, which the Supreme Court has discussed, is defeated in the case of Itek Corporation Vs. The First National Bank of Boston etc. while summing up the discussion on the points urged before it, the Supreme Court held :