1999 (2) TMI 606 - HC - Companies Law

Summary

Issues Involved:
1. Injunction against the enforcement of bank guarantees.
2. Fraud and irretrievable injury in relation to bank guarantees.
3. Compliance with the terms of the bank guarantee.
4. Maintainability of the appeal on grounds of acquiescence.

Detailed Analysis:

1. Injunction against the enforcement of bank guarantees:
The appellant contested an order that effectively restrained the enforcement of two bank guarantees. The court noted that the learned Single Judge misdirected himself by not applying the principles of injunction specific to bank guarantees and instead using general principles of injunction. The court emphasized that established legal principles require a party seeking an injunction against a bank guarantee to demonstrate a prima facie case of fraud and irretrievable injury, as highlighted in several Supreme Court judgments (e.g., Tarapore & Co. v. Tractorexport Moscow, United Commercial Bank v. Bank of India).

2. Fraud and irretrievable injury in relation to bank guarantees:
The respondent claimed that the appellant's invocation of the bank guarantees was fraudulent and arbitrary. However, the court found that the fraud alleged did not meet the high threshold required to vitiate the underlying transaction. Additionally, the court rejected the argument of irretrievable injury, noting that the respondent failed to demonstrate that they had no adequate remedy at law or that the harm alleged was genuine and immediate. The court referenced Svenska Handelsbanken v. Indian Charge Chrome, where similar claims of irretrievable injury were dismissed.

3. Compliance with the terms of the bank guarantee:
The respondent argued that the appellant did not strictly comply with the terms of the bank guarantees in their letters of invocation. The court dismissed this argument, stating that the invocation of a bank guarantee does not need to be as precise as a pleading in legal proceedings. Instead, it should be sufficient if the bank understands that the guarantee is being invoked. The court supported this view by referencing judgments from the Calcutta High Court (e.g., Road Machines (India) (P.) Ltd. v. Projects & Equipment Corp. of India Ltd., D.T.H. Construction v. Steel Authority of India).

4. Maintainability of the appeal on grounds of acquiescence:
The respondent contended that the appeal was not maintainable because the appellant had complied with the order under appeal by returning the bank drafts to the bank. The court rejected this argument, stating that compliance with a court order does not equate to acquiescence if the appellant has not taken any benefit from the order. The court cited State of Haryana v. Rajendra Sareen to support this position.

Conclusion:
The court concluded that the learned Single Judge failed to apply the correct legal principles regarding injunctions in relation to bank guarantees. The respondent did not establish a prima facie case of fraud or irretrievable injury. Therefore, the appeal was allowed, and the order of the learned Single Judge was set aside. The costs of the appeal were to be borne in the arbitration proceedings.