CROMPTON GREAVES LIMITED Vs. NATIONAL FERTILIZERS LIMITED

JUDGEMENT

(1.) THIS is an application filed under Section 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 Section 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.v. National Buildings Construction Corporation Ltd. reported 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 Section 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 is 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 v..Hyundai Heavy Industries Company Ltd. and anr. 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 investing the bank guarantee in the following terms -