1990 (5) TMI 249 - HC - Indian Laws

Summary

Issues Involved:
1. Existence of an Arbitration Clause
2. Grant of Ex Parte Temporary Injunction
3. Invocation and Honoring of Bank Guarantees
4. Prima Facie Case, Balance of Convenience, and Irreparable Injury
5. Nature of Bank Guarantees (Unconditional vs. Conditional)
6. Fraud or Special Equity in Favor of the Plaintiff

Issue-wise Detailed Analysis:

1. Existence of an Arbitration Clause:
The appellant argued that the lower court ignored the arbitration clause in the contract, which could lead to an application under Section 34 of the Arbitration Act. However, the court referenced the Supreme Court's decision in Food Corporation of India v. Yadav Engineer and Contractor, stating that contesting interlocutory orders or filing applications for setting aside ex parte interim injunctions does not disentitle a party from claiming a stay under Section 34.

2. Grant of Ex Parte Temporary Injunction:
The appellant contended that the trial court granted an ex parte temporary injunction without examining the case on the touchstone of prima facie case, balance of convenience, and irreparable injury. The lower court had observed that if the guarantee is invoked, the plaintiff would suffer irreparable loss. However, the court did not discuss settled principles of law regarding the interference in the invocation of bank guarantees.

3. Invocation and Honoring of Bank Guarantees:
The appellant argued that the bank guarantees were unconditional and should be honored on demand. The court cited several cases, including U.P. Co-operative Federation Ltd. v. Singh Consultants and Engineers (P.) Ltd. and United Commercial Bank v. Bank of India, establishing that courts should not interfere with the enforcement of bank guarantees unless there is fraud or apprehension of irretrievable injustice.

4. Prima Facie Case, Balance of Convenience, and Irreparable Injury:
The appellant argued that the lower court did not properly assess the prima facie case, balance of convenience, and irreparable injury. The court noted that the principles of non-interference are based on ensuring that the fabric of trading operations is not jeopardized. The court found that there was no prima facie case of fraud or special equity made out by the plaintiff.

5. Nature of Bank Guarantees (Unconditional vs. Conditional):
The court examined the unconditional nature of the bank guarantees, noting that the bank must pay on demand without any demur. The guarantees were found to be unconditional, as evidenced by specific clauses stating that payment must be made on demand by the beneficiary.

6. Fraud or Special Equity in Favor of the Plaintiff:
The court found no evidence of fraud or special equity in favor of the plaintiff. The plaintiff's contention that the earnest money clause had been modified was not supported by the correspondence between the parties. The court concluded that the employer had not accepted the modification of the clause, and the bank guarantees remained enforceable as per their original terms.

Conclusion:
The appeal was partly allowed. The order of injunction restraining the enforcement of bank guarantee No. 4 of 1989 was set aside, while the injunction against bank guarantee No. 10 of 1989 remained in place. The court emphasized the principles of non-interference in the enforcement of unconditional bank guarantees to maintain trust in commercial operations. No costs were awarded for the appeal.