1998 (4) TMI 574 - HC - Indian Laws

Summary

Issues Involved:
1. Enforceability of the bank guarantee.
2. Allegations of fraud by the defendant.
3. Irretrievable injustice to the plaintiff.
4. Compliance with the terms of the bank guarantee.

Issue-Wise Detailed Analysis:

1. Enforceability of the Bank Guarantee:
The plaintiff sought a declaration that the bank guarantee dated 6 December 1996 is not enforceable and requested a permanent injunction to prevent defendant no.2 from invoking it. The plaintiff argued that the bank guarantee for Rs. 20 lakhs was provided for mobilization advance, which was utilized for procuring materials worth over Rs. 24 lakhs. The defendant no.2 opposed the suit, claiming that the bank guarantee was unconditional and could be invoked irrespective of any disputes. The court noted that the bank guarantee was an absolute one and could be invoked by the beneficiary as per its terms.

2. Allegations of Fraud by the Defendant:
The plaintiff alleged that defendant no.2 committed fraud by not intending to hand over the site and making false representations about the site's readiness. The plaintiff argued that the defendant's actions, including the oral termination of the contract, were fraudulent. The court considered the correspondence between the parties, which indicated that the defendant failed to make the site available and delayed the completion of civil work, supporting the plaintiff's claim of fraudulent misrepresentation.

3. Irretrievable Injustice to the Plaintiff:
The plaintiff contended that allowing the encashment of the bank guarantee would cause irretrievable injustice, especially given the defendant's poor financial state and heavy debt. The court found that the plaintiff had established special equities in its favor, as it had spent more than Rs. 24 lakhs on procuring materials for the job. The court concluded that if the injunction was not granted, the plaintiff would suffer irretrievable injustice.

4. Compliance with the Terms of the Bank Guarantee:
The court examined the terms of the bank guarantee, which required the bank to pay the amount on demand from the employer, stating that the amount was due under the agreement. The court noted that the invocation of the bank guarantee by defendant no.2 did not comply with its terms, as it did not state that the plaintiff had not utilized the mobilization advance or indicate the amount of loss suffered. This non-compliance with the terms of the bank guarantee supported the plaintiff's case for restraining the encashment.

Conclusion:
The court allowed the plaintiff's application for an interim injunction, confirming the order dated 19 August 1997, which restrained defendant no.1 from encashing the bank guarantee. The court found that the plaintiff had successfully demonstrated special circumstances justifying interference and that allowing the encashment would result in irretrievable injustice. The court directed that the material procured by the plaintiff be preserved and the bank guarantee be kept alive until the disposal of the suit. The court's view was tentative and limited to the decision on the application, without expressing an opinion on the merits of the case.