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TMI Blog1994 (9) TMI 353X X X X Extracts X X X X X X X X Extracts X X X X ..... d hereto as Annexure III for the performance of its obligations under this contract and the export contract. The bank guarantee should be made valid up to 22-7-1985. In the event of supplier's failure to perform any of its obligations under the back-toback contract and/or the export contract, STC shall without prejudice have the right to claim eventual damages, be entitled to invoke the bank guarantees and forfeit the amount realised thereunder. Supplier's liability and on account of their failure to fulfil their obligations will not be restricted up to the value of the bank guarantee to be furnished by supplier. In furtherance thereof, the respondent had executed the contract of guarantee of even date, namely, 20-4-1985 in the following manner: That the Bank hereby irrevocably and unconditionally guarantee to the Corporation that in the event of any failure/default for whatever reason on the part of M/s Jainsons Clothing Corporation in performing all or any of its obligations under the said contract and/or the export contract and the L/C established thereunder and as may be amended from time to time, the Bank shall pay to the Corporation forthwith on Corporation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the foreign buyer and intimation in that behalf having duly been given to the respondent on 22-5- 1985, the appellant committed fraud in invoking the bank guarantee. The Analyst's Report, dated 15-5-1985 was sought to be relied upon to show that the respondent had sought to supply shipment of substandard B Grade Basmati rice contrary to the contract had been procured to show that the respondent has committed breach of the contract. He also contended that having done these fraudulent acts, the appellant is not entitled to invoke the bank guarantee and the Division Bench, therefore, was right in issuing the injunction pending the respondent's suit for permanent injunction. We find no substance in the contentions. 4. It is seen that the appellant in terms of clause 17 of the contract, extracted herein before, had clearly agreed to execute an unconditional and irrevocable bank guarantee for the performance of the contract to supply 3000 MT in terms of the contract dated 20-4-1985. The contract of guarantee is independent of and unconditional one. Its enforcement is not hedged with or conditional upon the performance of or frustration of the contract which either the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case that there is any fraud committed by the appellant in entering into contract with the respondent in particular with reference to clause 17 of the contract dated 20-4-1985. Nor is there any fraud in formation or execution of bank guarantee. From the contention of the appellant it would appear that on account of negotiations between the appellant and the principal foreign buyer Abu Dhabi Municipality, the supply of 7000 MT of B Grade Basmati Rice was not made in terms of the principal contract entered into by the appellant with the foreign buyer. But there is no clause in the contract dated 20-4-1985 entered between the appellant and the respondents that the contract with the respondents is note ominous with non-performance or frustration of the contract with the foreign buyer. In the absence of such recital the necessary consequences is that irrespective of the frustration of the contract or cancellation of the contract between the principal supplier, namely, the appellant and the foreign buyer, namely, Abu Dhabi Municipality, the respondent was under the contract obligated to make supply of 3000 MT of B Grade Basmati Rice in terms thereof. The certificate issued by the offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the court to grant the order of injunction as asked for. If the bank detects with the minimal investigation the fraudulent action of the seller, the payment could be refused is not a fraud as contemplated under the guarantee. We respectfully agree with the above ratio. This view was reiterated in General Electric Technical Services Co. Inc. v. Punj Sons (P) Ltd. (1991) 4 SCC 230 This Court has held in paragraph 9 thus: (SCC p. 237) The question is whether the court was justified in restraining the bank from paying to GETSCO under the bank guarantee at the instance of Respondent 1. The law as to the contractual obligations under the bank guarantee has been well settled in a catenate of cases. Almost all such cases have been considered in a recent judgment of this Court in U. P Coop. Federation Ltd. v. Singh Consultants and Engineers (P) Ltd. Following that ratio it was observed that: (SCC p. 237, para 9) [T]he Bank must honour the bank guarantee free from interference by the courts. Otherwise, trust 'in commerce internal and international would be irreparably damaged. It is only in exceptional cases that is to say in case of fraud or in case of irretrievable inju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules 1 and 2, CPC should prima facie be satisfied that there is triable issue strong prima facie case of fraud or irretrievable injury and balance of convenience is in favour of issuing injunction to prevent irremediable injury. The court should normally insist upon enforcement of the bank guarantee and the court should not interfere with the enforcement of the 4 (1982) 3 SCC 358 5 (1992) 2 SCC 330 contract of guarantee unless there is a specific plea of fraud or special equities in favour of the plaintiff. He must necessarily plead and produce all the necessary evidence in proof of the fraud in execution-of the contract of the guarantee, but not the contract either of the original contract or any of the subsequent events that may happen as a ground for fraud. 10. Under these circumstances, the High Court was wholly wrong in its conclusion that the respondent has proved prima facie case for granting injunction in favour of enforcement of the bank guarantee, admittedly entered into by the respondent with the appellant. The learned Single Judge was quite right in refusing to issue the injunction in terms of clause 17 of the contract and the bank guarantee given by the respondent. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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