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2017 (10) TMI 1626 - ANDHRA PRADESH HIGH COURTRequesting the Commercial Court to grant an injunction restraining the 1st respondent, its agents, servants, or any other persons claiming through or under it, from taking coercive action or otherwise, including but not limited to, restraining it from invoking or encashing the schedule bank guarantees issued by the 2nd respondent - Seeking to further restrain the 2nd respondent from honouring/encashing the schedule bank guarantees at the request of the 1st respondent. Object and purpose of furnishing bank guarantee - HELD THAT:- A bank, issuing a guarantee, is not concerned with the underlying contract between the parties to the contract. The duty of the bank, under a guarantee, is created by the document itself. Once the documents are in order, the bank giving the guarantee must honour the same and make payment. Ordinarily, Courts will not interfere, directly or indirectly, to withhold payment for, otherwise, trust in commerce, internal and international, would be irreparably damaged - A bank, which gives a performance guarantee, is not concerned with the relations between the supplier and the customer: nor with the question whether the supplier has performed his contractual obligation or not; nor with the question whether the supplier is in default or not. The bank must pay according to its guarantees, on demand if so stipulated, without proof or conditions. If the documentary credits are irrevocable and independent, the banks must pay when demand is made. Contract of Bank Guarantee is and independent contract:- HELD THAT:- A bank guarantee constitutes a separate, distinct and independent contract. This contract is between the Bank and the beneficiary. It is independent of the main contract between the person who has furnished the bank guarantee and the beneficiary - the bank guarantees, in the present case, are unconditional and, in terms thereof, the bank agreed to pay the first respondent, on demand, any or all monies payable by the appellant, to the extent referred to in the bank guarantees, without any demur, and even without reference to the appellant. The demand made by the first respondent on the bank, in terms of the contract of bank guarantees, was to be conclusive and binding notwithstanding any difference between the appellant and the first respondent or any dispute pending between them before any Court, Tribunal, arbitrator or any other authority. Exceptions to the rule that an injunction should not be granted against invocation of bank guarantees, are not limited to fraud and cannot be placed in a strait jacket - HELD THAT:- As injunction against encashment of a bank guarantee is an exception and not the rule, cases of such exceptions must be evidenced by documents and pleadings on record, and should compulsorily fall within any of the following limited categories (i) if there is a fraud in connection with the bank guarantee which would vitiate the very foundation of such guarantee and the beneficiary seeks to take advantage of such fraud; (ii) the applicant, in the facts and circumstance of the case, clearly establishes a case of irretrievable injustice or irreparable damage; (iii) the applicant is able to establish exceptional or special equities of the kind which would prick the judicial conscience of the Court; and (iv) when the bank guarantee is not invoked strictly in its terms, and by the person empowered to invoke it under the terms of the guarantee. In other words, the letter of invocation is in apparent violation of the specific terms of the bank guarantee - While cases of irretrievable injury, fraud, extraordinary special equities and invocation of bank guarantee contrary to the terms of the bank guarantee itself, are exceptions to the rule, it is difficult to draw any straitjacket formula which would universally apply to all cases. Can documents filed subsequent to the filing of OP, be relied upon? - HELD THAT:- In any event most of the documents, on which reliance is placed on behalf of the appellants, were filed in support of their claim that it is the first respondent’s failure to abide by its obligations under the underlying agreements which resulted in their inability to perform their obligations of conducting a provisional acceptance test. When can a prima-facie case for grant of injunction restraining the invocation of Bank Guarantee be said to have been made out? - HELD THAT:- As the appellant has sought an injunction to restrain the first respondent from invoking the bank guarantee in the Section 9 petition, and in the appeal now filed before us, the scope and ambit of the contract of bank guarantee primarily necessitates examination, and not the underlying contract, for the rival claims, based on disputes arising from the underlying contract, are matters for examination and resolution in arbitral proceedings. Nonetheless, the contentions urged by the Learned Senior Counsel on either side are being noted to show that the appellant does not have a fool proof case of even the underlying contract being vitiated by fraud justifying an injunction being granted to restrain the first respondent from invoking the bank guarantees. Can the first respondent be a judge in its own cause and unilaterally hold the appellant responsible for the delay and encash the bank guarantee towards their claim for delay liquidated damages - HELD THAT:- The appellant does not allege fraud on the part of the first respondent in obtaining the bank guarantee. Their entire case is founded on the allegation that the first respondent made a false claim for liquidated damages in execution of the works by the appellants two days after the commencement of commercial operations of Unit II, and such a false claim was made only to avoid making payment of the amounts due to the appellant, and to illegally encash the bank guarantee. The appellant alleges fraud because the first respondent’s claim for liquidated damages is contrary to the terms of the underlying contract. The amounts which the appellant claims as due to them is also based on their claim of having performed their obligations under the primary contracts. It is not even pleaded by the appellant, much less proved, that the first respondent had fraudulently obtained the bank guarantee. It is evident, therefore, that the first exception to rule against grant of injunction for invocation of bank guarantee, i.e., the bank guarantee has been obtained by fraud, is not attracted. Special Equities - whether the appellant has made out a case of irreparable injury, by proof of special equities for the Court to grant injunction to restrain the first respondent from encashing the bank guarantee? - HELD THAT:- Mere apprehension that the first respondent would not able to repay the amounts, which it would receive on encashment of the bank guarantees, is not enough to restrain them from invoking the bank guarantees. The appellant claims that they would also suffer huge loss if the first respondent were to unilaterally adjust the amount claimed as liquidated damages, with the amounts they would receive on encashment of the bank guarantees. This would, also, not constitute special equities justifying grant of an order of injunction restraining the first respondent from encashing the bank guarantees. While claiming that the amounts due to it from the appellant is far higher than the amounts which they have sought to recover towards liquidated damages together with the retention money, the first respondent also contends that the amounts, which the appellant claims to be retention money and as payable to them in excess of Rs.300 Crores, constitute amounts representing milestone payment, which would fall due only on the appellant achieving provisional acceptance; and, till they do so, they are not entitled for the said sum. These are again matters which are required to be examined by the arbitral tribunal, and not by this Court in an appeal preferred against an order passed by the Commercial Court in a petition filed under Section 9 of the 1996 Act. Suffice it to hold that the appellant has not made out a case of special equities justifying an order of injunction being granted to restrain the first respondent from invoking the bank guarantees. False plea in the section 9 petition filed by the appellant and its consequence - HELD THAT:- It is the duty of a party seeking injunction to bring to the notice of the Court all facts material to the determination of his right to that injunction; and it is no excuse for him to say that he was not aware of the importance of any facts which he has omitted to bring forward - While the ex facie false plea, of having already achieved provisional acceptance, in the Section 9 petition filed by the appellant, would have, by itself, necessitated denying them any relief, and in non-suiting them on this short ground, we have examined their claim on merits, including that the invocation of the bank guarantee is fraudulent and special equities are in their favour, as the increase in the number of cases seeking injunction, restraining invocation of bank guarantees, under the 2015 Act, made us feel the need to reiterate the law declared by the Supreme Court on these aspects. Thus, there are no reason to restrain the first respondent from invoking the bank guarantees furnished by the appellant, as these bank guarantees are unconditional and unequivocal, and the appellant has neither made out a case of fraud vitiating the contract of bank guarantee nor of special equities justifying an order of injunction being granted restraining invocation of the bank guarantees. Appeal dismissed.
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