DEVI SHAKUNTALA THAKRAL Vs. WIG BROTHERS PVT LTD

JUDGEMENT

(1.) Assailing the order dated 21.12.2010 passed by District Judge, Jabalpur in Civil Suit No. 3-A/2008, the defendant No. 1 /appellant has filed this appeal under Order 43 Rule l(r) of CPC whereby the application under Order 39 Rule 1 and 2 read with Section 151 of CPC has been allowed granting injunction in favour of plaintiff/respondent No. 1. The plaintiff/respondent No. 1 filed a suit for declaration that the invocation of the Bank guarantee by defendant No. 1/appellant is illegal and fraudulent with a further prayer to issue perpetual prohibitory injunction against the defendants from invoking the Bank guarantees and its encashment. It is said that defendant No. 1 is a society registered under the Societies Registration Act, 1860 and the defendant No. 2 Bank issued the Bank Guarantees in favour of defendant No. 1 for and on behalf of the plaintiff. The defendant No. 1 /appellant invited bids through tender for engagement of the civil contractors, to carry out the work of construction of various buildings at Oriental Institute of Science and Technology and Oriental Engineering College, Jabalpur The plaintiff submitted its bid on 13.3.2009 of the total sum of Rs. 15,03,12,004/- which was accepted by defendant No. 1 and a Letter of Intent (in short "the LOI") was issued on 21.4.2009. In Clause 31 of LOI it is stipulated that the mobilization advance of Rs. 1.00 crore will be given to the Contractor against the Bank guarantees for an equal amount. The interest at the Bank rate applicable to Devi Shakuntala Thakral Charitable Foundation (presently @ 10%) will be chargeable from the Contractor on the said amount. The mobilization advance shall be recovered and adjusted in the running account bills @ 5% of the total amount of the bill and the balance in the settlement of final bill. As per pleadings of the plaint, settlement of the third final bill would be adjusted from third running bill onwards submitted by the plaintiff on pro-rata basis. Plaintiff agreed to furnish the Bank guarantee to defendant No. 1 for securing the mobilization advance which may be encashed after settlement of the final bill submitted by the plaintiff in terms of the contract, if any amount remains unadjusted towards mobilization advance and if the plaintiff fails to pay the same then the defendant No. 1 has been secured by the Bank guarantee. The plaintiff submitted five Bank guarantees each amounting to Rs. 20,00,000/- to defendant No. 1 issued by defendant No. 2. Out of the said five Bank guarantees, the Bank guarantee dated 28.4.2009 amounting to Rs. 20.00 lacs was returned to plaintiff on adjustment of Rs. 20.00 lacs from the running bills. The remaining four Bank guarantees amounting to Rs. 80.00 lacs were with the defendant No. 1. The plaintiff has not submitted the final bill, however the issue of determination of the remaining unadjusted amount against mobilization advance does not arise. It is said that the defendant No. 1 by its letter dated 19.7.2010 wrongly, fraudulently and illegally invoked all the four remaining Bank guarantees for the reason of unsatisfactory performance of the contract. It is submitted that the Bank guarantees were given to secure re-payment of the mobilization advance and not for the performance of the work, however such Bank guarantees cannot be invoked or encashed due to the alleged non-performance. It is further said that the Bank guarantee was conditional Bank guarantee and its invocation is contrary to the contract and wholly illegal. The defendant No. 2 Bank by its letter dated 26.7.2010 informed the plaintiff regarding the letter of invocation issued by the defendant No. 1 and requested to respond to the same. A detailed reply was submitted by the plaintiff vide letter dated 27.7.2010 to the defendant No. 2 explaining that the invocation of Bank guarantee by defendant No. 1 is illegal, fraudulent and wrong. It is further said that if defendant No. 2 proceeds for encashment of the said Bank guarantee in favour of defendant No. 1, it will cause a serious prejudice to the goodwill of the plaintiff. It is also said that the conduct of the defendant No. 1 is completely dishonest and he has also made an attempt to commit the similar fraudulent act with M/s. L & T and M/s. Datt Builders in relation to which legal proceedings are pending in various Courts. Thus special equities lie in favour of the plaintiff and in fact he shall suffer irretrievable injustice if the invocation of the Bank guarantees is allowed. In these circumstances, prayer was made to grant injunction restraining the defendants from invoking or encashing the Bank guarantees during the pendency of the suit.

(2.) The plaint allegations have been denied by the defendant No. 1 raising a preliminary objection of jurisdiction of the Court at Jabalpur. It is said that as per Letter of Intent the jurisdiction lies with the Bhopal Court and the suit cannot be maintained in view of the arbitration clause in agreement and due to which the plaintiff may raise the dispute before the arbitrator. It is said that the defendant No. 1 has not committed any fraud as alleged. In the said reply, the process of tender, issuance of common LOI and different work orders for construction of various buildings at Oriental Institute of Science and Technology and Oriental Engineering College, Jabalpur have not been disputed. It is merely said that the answering respondent has not committed any fraud. After issuance of the LOI the plaintiff has not adhered to the terms and conditions as agreed. Even on reminder and caution for unsatisfactory performance of the work, not having satisfactory progress, the mobilization amount was not being utilized in the ratio, thus the Bank guarantee has been invoked by defendant No. 1 through defendant No. 2 in accordance with law. The allegation as alleged with respect to fraud has been denied. It is said that the Bank guarantee was unconditional and irrevocable, however the defendant No. 2 is not required to go into the dispute between the plaintiff and the defendant No. 1 and rightly been encashed by the defendant No. 2 on 7.8.2010 itself prior to passing the order of injunction. In view of the said, it is urged that prayer for temporary injunction as made by the plaintiff may be refused.

(3.) The Trial Court referring the letter of invocation dated 19.7.2010 issued by defendant No. 1 and the terms of the Bank guarantee found that the Bank guarantee was issued for mobilization of the advance payment but the invocation has been prayed for due to non-performance of the satisfactory work. It has also found that for non-performance of the contract, no Bank guarantee has been issued for invocation, however recorded a prima facie finding that invocation of the Bank guarantee due to non-performance of the contract is illegal. It has further been observed that summons of the suit were received by the defendants on 5.8.2010 and the Bank guarantees were encashed on 7.8.2010 after receiving of summons, however the invocation and encashment is contrary to the purpose for which the Bank guarantee was issued, and directed to deposit the amount of Bank guarantee i. e. Rs. 80.00 lacs with interest at the Bank rate maintaining the status quo ante as prevalent on the date of filing of the suit.