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2015 (12) TMI 1880 - SC - Indian LawsRestraint on invocation of Bank Guarantee - Execution of bank guarantee was made for securing payment in lieu of the products supplied by the Appellant to Respondent No. 1, M/s. RMSFC - Unconditional Bank Guarantee - Outstanding Certificate seeking payment, on account of despatch of fruit to M/s. RMSFC - balance of convenience - HELD THAT - The principles laid down by this Court in U.P. Cooperative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd. 1987 (11) TMI 375 - SUPREME COURT , and in Vinitec Electronics Private Ltd. v. HCL Infosystems Ltd. 2007 (11) TMI 588 - SUPREME COURT have been gone into - Having given thoughtful consideration to the law laid down by this Court, in respect of grant/refusal of an injunction of an unconditional bank guarantee, and keeping in mind the terms and conditions, more particularly of the contractual conditions extracted and narrated above, we are satisfied that the courts below were not justified in injuncting the invocation of the three bank guarantees, executed by the State Bank of Mysore, at the instance of M/s. RMSFC. The Respondent Nos. 2 and 3 - the State Bank of Mysore is directed to honour the same forthwith. Appeal disposed off.
Issues Involved:
1. Nature and enforcement of bank guarantees. 2. Conditions for granting injunctions against the invocation of bank guarantees. 3. Allegations of fraud and irretrievable injury. 4. Interim orders and their validity. 5. Rights and obligations of the parties under the contractual agreement. Detailed Analysis: Nature and Enforcement of Bank Guarantees: The core issue revolves around the enforcement of three unconditional bank guarantees executed by the State Bank of Mysore in favor of M/s. Adani Agri Fresh Ltd. (AAFL) for securing payment from M/s. RMS Fruits and Company (RMSFC). The guarantees were irrevocable and unconditional, with the guarantor waiving all objections and defenses. The guarantees allowed AAFL to demand payment from the guarantor without first seeking reimbursement from RMSFC. The court emphasized that the terms of the bank guarantees were clear and unconditional, obligating the guarantor to pay upon AAFL's demand. Conditions for Granting Injunctions Against Invocation: The court reviewed the legal principles governing the issuance of injunctions against the invocation of bank guarantees. It cited precedents, including U.P. Cooperative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd. and Vinitec Electronics Private Ltd. v. HCL Infosystems Ltd., establishing that injunctions can only be granted in cases of proven fraud or irretrievable injury. The court noted that the usual parameters for granting injunctions, such as prima facie case, balance of convenience, and irreparable loss, do not apply to unconditional bank guarantees. Allegations of Fraud and Irretrievable Injury: The court examined the defense raised by RMSFC, which relied on a communication dated 14.01.2011, allegedly from AAFL, agreeing to a settlement due to damaged goods. RMSFC also presented photographs of rotten apples. However, AAFL contended that the communication was fabricated. The court concluded that there were no allegations or evidence of flagrant fraud by AAFL. Furthermore, RMSFC failed to establish that the invocation of the guarantees would cause irreparable injury or irretrievable injustice. Interim Orders and Their Validity: The trial court had issued an interim order restraining the banks from making payments under the guarantees, which was upheld by the appellate court and the High Court of Karnataka. The Supreme Court found that the lower courts erred in granting the injunction, as the conditions for such relief-fraud or irretrievable injury-were not met. The court directed the State Bank of Mysore to honor the guarantees immediately. Rights and Obligations Under the Contract: The court acknowledged the ongoing dispute regarding the quality of goods supplied and the alleged settlement communication. It allowed RMSFC to amend its plaint to seek appropriate relief under the contractual obligations. The court also provided RMSFC the liberty to initiate civil and criminal proceedings against AAFL if the communication dated 14.01.2011 was proven to be genuine. Conclusion: The Supreme Court set aside the interim orders restraining the invocation of the bank guarantees, directing the State Bank of Mysore to honor them. The court reiterated the principles governing the enforcement of unconditional bank guarantees and the limited grounds for granting injunctions against such enforcement. The judgment underscores the independence of bank guarantees from underlying contractual disputes and the stringent requirements for alleging fraud or irretrievable injury.
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