2004 (1) TMI 385 - HC - Companies Law

Summary

Issues Involved:
1. Injunction against invoking bank guarantees.
2. Jurisdiction and arbitration clause.
3. Effect of winding up order and appointment of provisional liquidator on bank guarantees.

Detailed Analysis:

Injunction Against Invoking Bank Guarantees:
The appellant, a company, had awarded a contract to respondent No. 1 for setting up a UPPC Complex. Respondent No. 1 obtained three bank guarantees from Bank of Maharashtra to secure advance payments from the appellant. Due to non-completion of the work, the appellant sought to invoke the bank guarantees. Respondent No. 1 filed suits to restrain the invocation, and the Trial Court granted an injunction. The appellant argued that the Trial Court erred in granting the injunction as no fraud was alleged or proved, citing various Apex Court judgments which state that an injunction against a bank guarantee can only be issued if fraud is proven. The High Court agreed with the appellant, stating that the Trial Court erred in issuing the injunction as no prima facie case of fraud was made out by the plaintiff.

Jurisdiction and Arbitration Clause:
The appellant also filed an application under Section 9A of the Civil Procedure Code, challenging the jurisdiction of the Pune Court, and under Section 8 of the Arbitration and Conciliation Act, 1996, seeking a stay of the suit and reference to arbitration. The Trial Court's decision to grant the injunction was challenged on the grounds that the arbitration clause in the contract should have led to a stay of the proceedings. The High Court did not specifically address the jurisdiction and arbitration issues in detail but focused on the erroneous issuance of the injunction.

Effect of Winding Up Order and Appointment of Provisional Liquidator on Bank Guarantees:
During the pendency of the appeals, the respondent No. 1 company was ordered to be wound up, and a provisional liquidator was appointed. The appellant argued that the winding up order should not affect the invocation of the bank guarantees. The High Court referred to Apex Court judgments which held that payment under a bank guarantee should not be stayed due to winding up proceedings, as the bank guarantee is an independent contract between the bank and the beneficiary. The High Court concluded that the winding up order and the appointment of the provisional liquidator do not affect the appellant's right to invoke the bank guarantees.

Conclusion:
The High Court quashed the Trial Court's order of injunction and directed Bank of Maharashtra to honor the bank guarantees within four weeks. The appeals were allowed, and any pending civil applications were disposed of accordingly. The High Court emphasized that the bank guarantees are independent contracts and must be honored irrespective of the liquidation proceedings of respondent No. 1.