ALLIED CONSTRUCTION CO Vs. UNION OF INDIA

JUDGEMENT

(1.) PETITIONER is a firm of contractors which undertook construction of certain buildings for the defence authorities at Balasore and Chandipur. Two separate contracts were to be executed and petitioner was required to make initial security deposits of Rs. 60,000/-and Rs. 25,500/- which were to be in cash or at the request of the contractor could be in any prescribed alternative form as the authorities would approve. In the instant case, petitioner-firm furnished Bank guarantees for the aforesaid amounts through the Central Bank of India, Cut-tack Branch, and while the guarantee for Rs. 25,500/- was valid till 25-41975, the other one was to remain in force till 31-12-1975. Disputes arose between the contracting parties and on the basis of the arbitration clause contained in the contracts the petitioner-firm applied to the Court of the learned Subordinate Judge at Balasore under Sections 8 and 20 of the Arbitration Act for filing of the arbitration agreements and for reference of the disputes to an arbitrator. While the cases were pending in the Court of the learned Subordinate Judge, the petitioner applied under Order 39, Rule 1 of the Code of Civil Procedure for an injunction against the opposite parties from encashing the guarantees on the ground that the security was intended to be utilised in the event of loss or damage arising out of breach of contract by the contractor and no claim on such score having become due, the guarantees could not be encashed. The learned Subordinate Judge rejected both the applications by saying almost in similar terms thus :-

(2.) LEARNED Counsel for the defendants-opposite parties does not dispute that the stage for appropriating the security money had not arisen as there is no ascertained claim yet for compensation on account of breach of contract. It is not disputed that the learned trial Judge correctly stated the position that the security was intended to be used only when such a claim arose. It is true that the security deposit could be furnished in different modes and if petitioner had furnished cash security, the money would have been at the disposal of the opposite parties. On being moved by the petitioner, the appropriate opposite parties had permitted the firm to furnish security in an alternative mode, i. e. by Bank guarantee. A Bank guarantee is a very convenient mode of furnishing security and for a commercial; firm furnishing of & bank guarantee is an easier mode than furnishing security in cash. The learned trial Judge failed to appreciate the distinction between secu-rity in the shape of bank guarantee and security in terms of cash. If the distinction had been maintained and the inconvenience which would be caused by encashment of the guarantee had been noticed, the learned Subordinate Judge would not have disposed of the matter by accepting the contention that if cash security had been furnished, petitioner could not have made the grievance in question. The Court is not called upon to consider what would have happened if cash security had been initially furnished. The learned trial Judge has further stated that there was no irreparable loss and if ultimately the withdrawal of the amount is found to be unjustified, the petitioning firm could be compensated. The Court had been moved well in time and long before the guarantees were to lapse. If these aspects had been kept in view, the defendants could have been restrained from encashing the guarantees and the petitioner-firm could have been directed to furnish new bank guarantees to satisfy the requirement of the contracts.