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2016 (5) TMI 516 - SC - Indian LawsGrant of an interim injunction restraining encashing of the Bank Guarantee refused - Held that - On perusal of the record of the case we find that firstly arbitration proceedings in relation to the contract dated 22.08.2005 are still pending. Secondly the sum claimed by the respondents from the appellant does not relate to the contract for which the Bank Guarantee had been furnished but it relates to another contract dated 22.08.2005 for which no bank guarantee had been furnished. Thirdly the sum claimed by the respondents from the appellant is in the nature of damages which is not yet adjudicated upon in arbitration proceedings. Fourthly the sum claimed is neither a sum due in praesenti nor a sum payable. In other words the sum claimed by the respondents is neither an admitted sum and nor a sum which stood adjudicated by any Court of law in any judicial proceedings but it is a disputed sum and lastly the Bank Guarantee in question being in the nature of a performance guarantee furnished for execution work of contract dated 14.07.2006 (Anand Vihar works) and the work having been completed to the satisfaction of the respondents they had no right to encash the Bank Guarantee. We have therefore no hesitation in holding that both the courts below erred in dismissing the appellant s application for grant of injunction. We are also of the view that the District Judge having decided the injunction application in the first instance in appellant s favour vide order dated 04.01.2012 erred in rejecting the application made by the appellant second time vide order dated 12.07.2012. It is not in dispute that the respondents despite having suffered the injunction order dated 04.01.2012 did not file any appeal against this order. Such order thus attained finality and was therefore binding on the parties. Thus we hold that the appellants have made out a prima facie case in their favour for grant of injunction against the respondents so also they have made out a case of balance of convenience and irreparable loss in their favour as was held by this Court in the case of Union of India (DGS D) (1974 (3) TMI 105 - SUPREME COURT ). Allow injunction application made by the appellant under Section 9 of the Act in Arbitration Suit no. 411/2011 in District Court Allahabad and grant injunction in appellant s favour by restraining the respondents jointly and severally from encashing Bank Guarantee no. 12/2006 dated 04.08.2006 furnished by the appellant in connection with Anand Vihar Works
Issues Involved:
1. Whether the respondents were entitled to encash the Bank Guarantee furnished for Anand Vihar works in relation to a different contract. 2. Whether the respondents could invoke Clause 62(1) of the General Conditions of Contract (GCC) for recovery of dues. 3. Whether the appellant was entitled to an injunction to prevent the encashment of the Bank Guarantee. 4. The applicability of the law laid down in Union of India vs. Raman Iron Foundry to the present case. Issue-wise Detailed Analysis: 1. Entitlement to Encash the Bank Guarantee: The appellant, a Limited Company, was awarded two separate contracts by the respondents (North Central Railway). The first contract dated 22.08.2005 involved earthwork and construction related to the Agra-Etawah new BG Rail Line, while the second contract dated 14.07.2006 (Anand Vihar works) involved the construction of various buildings and facilities. The appellant furnished a Bank/Performance Guarantee for the Anand Vihar works. When the first contract was terminated due to delays, the respondents sought to encash the Bank Guarantee related to the second contract to recover losses from the first contract. The appellant argued that the Bank Guarantee was specific to the Anand Vihar works, which had been completed satisfactorily, and thus could not be encashed for disputes arising from another contract. 2. Invocation of Clause 62(1) of GCC: The respondents contended that Clause 62(1) of the GCC empowered them to recover any dues from the appellant, even if such dues were disputed and related to another contract. The District Judge initially restrained the respondents from encashing the Bank Guarantee but later dismissed the appellant’s petition, accepting the respondents' argument that Clause 62(1) allowed recovery of dues from any contract. The High Court upheld this view. 3. Entitlement to Injunction: The appellant sought an injunction under Section 9 of the Arbitration and Conciliation Act, 1996, to prevent the encashment of the Bank Guarantee. The appellant argued that the Bank Guarantee was a performance guarantee for the Anand Vihar works, which had been completed satisfactorily, and that any dues related to the first contract were still under arbitration and not yet determined. The Supreme Court found merit in the appellant's arguments, noting that the Bank Guarantee was specific to the Anand Vihar works and could not be encashed for disputes arising from another contract. 4. Applicability of Union of India vs. Raman Iron Foundry: The Supreme Court relied on the precedent set in Union of India vs. Raman Iron Foundry, which held that a claim for damages is not a "sum due" or "sum payable" until adjudicated by a court or arbitrator. The Court found that the facts of the present case were similar to the Raman Iron Foundry case, where it was held that a claim for damages cannot be recovered by appropriating sums due under another contract. The Supreme Court concluded that the respondents' claim for damages from the first contract was not a "sum due" or "sum payable" and thus could not be recovered by encashing the Bank Guarantee related to the second contract. Conclusion: The Supreme Court allowed the appeal, set aside the impugned order, and granted an injunction restraining the respondents from encashing the Bank Guarantee furnished for the Anand Vihar works. The Court held that the appellant had made out a prima facie case for an injunction, and the balance of convenience and irreparable loss favored the appellant. The Court emphasized that the law laid down in Union of India vs. Raman Iron Foundry was applicable, and the respondents could not encash the Bank Guarantee for a disputed claim related to another contract.
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