J.D Kapoor, J.— From the pleadings of the parties following preliminary issue has emerged for determination:

“Whether this court has no territorial jurisdiction to entertain the suit?”

2. This is a suit for perpetual injunction for restraining defendant No. 2 from seeking payment from defendant No. 3 under the bank guarantee dated 8th Oc- tober, 1999 and also for restraining defendant No. 3 from making any payment to defendant No. 2 under the said bank guarantee.

3. Relevant facts, in-short, are as under:

The plaintiff entered into a contract dated 26th March, 1999 to sell and supply certain Electro-Mechanical equipments to the defendant No. 1 and thereafter commission the same in the Agnoor hydroelectric project to be constructed by defendant No. 1 for defendant No. 2. As per the contract, the defendant No. 1 agreed to give a mobilisation advance of Rs. 65 lacs to the plaintiff which was as per letter of indent to be given into two instalments of Rs. 40 lacs and 25 Sacs. The amounts were to be secured by giving of bank guarantees by the plaintiff which were to be issued in favour of defendant No. 2. Terms of payment, as per clause 3.1 were as under:

“The changes mentioned by you in advance payment are contrary to the agreement already reached between us which was the basis for reduction in prices agreed by us during our discussions in Faridabad on 28.2.99 We, therefore, request you to keep this clause unchanged. However, if you wish to break the advance as stated in your letter, we shall give B.G only for the first Rs. 40.0 lacs and no B.G shall be given for release of Rs. 25.0 lacs as this will not be an advance payment, but payment against submission of detailed drawings (work done).”

4. The plaintiff gave the first bank guarantee dated 22nd April, 1999 issued by defendant No. 3 to the defendant No. 1. Defendant No. 1, in response thereto, by way of bank drafts dated 12.6.99 of Bank of Baroda, Hazra Road, Calcutta, payable at New Delhi, sent to the plaintiff an amount of Rs. 35 lacs. The plaintiff sent the second bank guarantee dated 8.10.99 issued by the defendant No. 3 for a sum of Rs. 30 lacs to the defendant No. 1 by requesting to defendant No. 1 to release the advance payment at the earliest. Thus, both the bank guarantees given by the plaintiff to defendant No. 1 were to secure the mobilisation amount of Rs. 65 lacs which the plaintiff was to receive from the defendant No. 1. It is averred by the plaintiff that very basis of giving of bank guarantees was that it receives moneys in advance from the defendant No. 1.buyer. In the instant case the plaintiff has not received any amount from defendant No. 1 in respect of second bank guarantee dated 8th October, 99 for Rs. 30 lacs on the ground that the plaintiff has not yet given the detailed drawings of the equipments which it was to supply for the project.

5. The plaintiff has invoked the territorial jurisdiction of this court qua defendant No. 1 on the premise that payment under the sub-contract were received at New Delhi by way of bank drafts which were payable at New Delhi and were sent by defendant No. 1 to the plaintiff at New Delhi and further that the payments under the bank guarantee were to be collected by the S.R Branch, Bank of Baroda at New Delhi. Besides this the sub-contract was entered into at New Delhi because the acceptance letter dated 16th April, 1999 sent by the plaintiff to defendant No. 1 was despatched and sent from New Delhi.

6. In support of the contention that a place where payment under a contract is received is a territorial jurisdiction of the court with respect to the contract, Mr. Valmiki Mehta, learned counsel for the plaintiff has relied upon ABC Laminart Pvt. Ltd and Another v. A.P Agencies, Salem, AIR 1989 SC 1239 wherein the manufacturer and supplier of the goods having its registered office at Udyog-nagar, Mohamadabad, Gujarat entered into an agreement whereunder they were to supply yarn to the respondent within the jurisdiction of civil jurisdiction of Kaira. It entered into an agreement with the respondent to supply 5000 bobbins of Rupalon Metallic Yarn. Clause 11 of the Agreement provided as follows:

“Any dispute arising out of this sale shall be subject to kaira jurisdiction.”

7. Dispute having arisen out of the contract the respondent filed a suit in the court of Salem Since under Section 20(c) of the Code of Civil Procedure every suit is to be instituted in a court within the local limits of whose jurisdiction the cause of action, wholly or in part arises, the Supreme Court in the matter of contract made the following observations as to the places where the causes of action arise:

“If the contract is to be performed at the place where it is made, the suit on the contract is to be filed there and nowhere else. In suits for agency actions the cause of action arises at the place where the contract of agency was made or the place where actions are to be rendered and payment is to be made by the agent. Part of cause of action arises where money is expressly or impliedly payable under a contract.”

8. It, therefore, can not be gainsaid that in matter of contract part of cause of action arises where money is expressely or impliedly payable under a contract.

9. Another case relied upon by Mr. Mehta in support of his plea that jurisdiction of either court can be invoked where either an offer in full or in part thereof is performed including the places where the goods are supplied is Bhagwandas Goverdhandas Kedia v. M/s. Girdharilal Parshottamdas and Co. and Others, AIR 1966 SC 543. In this case, the plaintiff commenced the action on the plea that the defendant had failed to supply cotton sheet coke which they had agreed to supply under oral contract dated 22nd July, 1959 negotiated between the parties by conversation on long distance telephone and since defendant had offered to sell cotton sheet coke which offer was accepted by the plaintiff at Ahemdabad, the court at Ahemdabad has the jurisdiction. The Supreme Court laid down the following law:

“In the case of negotiation by post the contract is complete when acceptance of the offer is put into a course of transmission to the offered. A similar rule has been adopted when the offer and acceptance are by telegrams. The exception to the general rule requiring intimation of acceptance may be summarised as follows. When by agreement, course of conduct, or usage of trade, acceptance by post or telegram is authorised, the bargain is struck and the contract is complete when the acceptance is put into a course of transmission by the offered by posting a letter or dispatching a telegram.”

10. Again Mr. Mehta derived assistance from Bhagwandas Goverdhandas Kedia (supra) while claiming the jurisdiction of this court on the premise that the bank guarantee through which the payment is being claimed was issued to defendant No. 3 at New Delhi and the acceptance dated 16th April, 1999 was issued from New Delhi and therefore this court has a territorial jurisdiction to try the suit.

11. Mr. Rajiv Nayar, Sr. Advocate appearing for defendant No. 1 does not agree with Mr. Mehta. According to Mr. Rajiv Nayar the main contract was between defendant No. 2 and defendant No. 1; defendant No. 1 sub-contracted the same to the plaintiff; the plaintiff gave a bank guarantee in favour of defendant No. 2 which was to be invoked for non-performance of certain obligations mentioned in the bank guarantee itself and even if it is assumed that the situs of contract between the plaintiff and defendant No. 1 was New Delhi or even if it is assumed that the payment was to be made at New Delhi or the part of the cause of action between the plaintiff and defendant No. 1 arose at New Delhi still the fact remains that no relief has been sought by the plaintiff against defendant No. 1 nor was any relief of the kind claimed by the plaintiff was available to the plaintiff as the plaintiff is seeking restraint order against defendant No. 2 against invoking the bank guarantee.

12. Thus, according to Mr. Nayar, the contract, if any, vis-a-vis the bank guarantee was between the plaintiff and defendant No. 2 and even otherwise the defendant No. 1 was a stranger to the bank guarantee as this bank guarantee was between defendant No. 3 and defendant No. 2 and non-performance of the obligation by the plaintiff arising out of the bank guarantee is not within the territorial jurisdiction of this court as the plaintiff is stationed at Faridabad and the drawings were to be supplied at Agnoor in Bihar and therefore this court has no territorial jurisdiction.

13. While distinguishing the ratio of ABC Laminart (P) Ltd. (supra) Mr. Nayar contended that the plaintiff has tried to arrogate jurisdiction vis-a-vis defendants 1 and 3 on the presumption that it was an agency suit and as such it cannot seek injunction order against defendant No. 2 through this suit as in ABC case, Supreme Court has held that if the contract is to be performed at the place where it is made, the suit on the contract is to be filed there and nowhere else and at a place where the contract of agency was made or the place where actions are to be rendered and payment is to be made by the agent. However, Supreme Court has also held that part of cause of action arises where money is expressly or impliedly payable under a contract.

14. Facts of instant case are altogether on different footing. Offer was made by the defendant No. 1 to the plaintiff through letter dated 26th March, 1999. Terms of payment envisaged that defendant No. 1 will pay advance in two instalments viz. 35 lacs and 30 lacs. Rs. 35 lacs was to be paid only against bank guarantee and when defendant No. 1 was to give second advance the plaintiff was to secure the same through bank guarantee as well as by supplying drawing within two months.

15. The plaintiff did not object to the invocation of the first guarantee by defendant No. 2 because the plaintiff received the advance. As far as second guarantee is concerned the plaintiff has not received any advance from defendant No. 1. Thus the guarantee is not performance guarantee but mobilisation advance guarantee.

16. However, while providing a compedious meaning to the expression ‘cause of action’, the Hon'ble Supreme Court in Rajasthan High Court Advocates Association v. Union of India and Others, AIR 2001 Supreme Court 416 has held that every fact which is necessary to be proved, as distinguished from every piece of evidence which is necessary to prove each fact, comprise in “cause of action”. It has to be left to be determined in each individual case as to where the cause of action arises.

17. In the matter of a contract various kinds of causes of action arise for instance suit for damages, for breach of contract, the making of the contract itself as a part of contract, the performance of a contract itself is a part of cause of action.

18. I have no hesitation in concluding that qua defendant No. 1 this Court has territorial jurisdiction on two Courts. Firstly, because the payment under the contract has been made by means of bank guarantee which were payable at New Delhi. Payment by way of bank guarantee at New Delhi is differentiated from a cheque which is to be issued in Calcutta and is to be collected in Calcutta by the banker of the plaintiff.

19. Secondly, the contract came into existence in Delhi when the acceptance letter of contract was posted from Delhi. The letter of acceptance was posted from New Delhi wherein the registered office of the plaintiff has been shown as A-219, Okhla Industrial Area, New Delhi though at the top of the letter on the right side the address has been given as 13/1, Mathura Road, Faridabad. Since the company functions from different places the letter of acceptance of offer can be despatched from both the places and in the instant case the letter was posted from the registered office which is situated at New Delhi and since the presumption of posting of letter is more in favour of the plaintiff. The court has a jurisdiction where either an offer in full or in part thereof is performed including the places where the goods are supplied or received or the payments are received.

20. Now comes the question of jurisdiction visa-vis defendant No. 2. Learned Additional Solicitor General Mr. R.N Trivedi appearing on behalf of defendant No. 2 has banked upon the independent and distinct nature of the contract of bank guarantee. According to Mr. Trivedi the main grievance of the plaintiff is against defendant No. 1 with whom it has arbitration agreement and since defendants 2 and 3 are not party to the said arbitration agreement, defendant No. 2 is not concerned as to how many sub-contractors defendant No. 1 employed to execute the work. It is only concerned with the invocation of the bank guarantee which is independent contract and has been given by the plaintiff on behalf of the defendant No. 1.

21. While drawing the parallels between the two cases Mr. Trivedi relied upon Hindustan Steelworks Construction Ltd v. Tarapore & Co. and Another, (1996) 5 SCC 34 In this case the work contract was awarded by HSCL to the respondent contractor. Bank gave a number of guarantees in favour of HSCL at the instance of the respondent. Those bank guarantees were towards mobilisation of advance, security deposit, securing the working funds provided by HSCL to the respondent and due performance of the contract. By these bank guarantees, except the guarantee which was to secure the working funds, the bank underlook to/indemnify HSCL against any loss or damage caused to or suffered by it by reason of any breach of the contractor of any term and condition of the contract. It was also stipulated in the bank guarantees that HSCL shall be the sole judge on the question as to whether the contractor had committed any breach of the contract and what was the extent of loss or damage. It was further stipulated therein that the decision of HSCL in this behalf shall be treated as final and binding on the Bank.

22. By furnishing the bank guarantee to secure the working funds the bank undertook to pay HSCL on demand any amount payable by the contractor without any demur and protest, without any reference to the contractor and such demand by HSCL had to be regarded as conclusive and binding on the Bank notwithstanding any difference between the HSCL and the contract. As the contractor could not complete the works under the contract within the stipulated time and even within the extended time, a dispute arose between the parties which were referred to the arbitrators.

23. The Contractors filed petitions under the Arbitration Act in court seeking injunction restraining HSCL from encashing the bank guarantees. On finding that the bank guarantees were unconditional the court refused to grant the injunction. However, the High Court in revision took the view that terms in a bank guarantee making the beneficiary the sole judge on the question of breach of contract and the extent of loss or damages were invalid and that no amount could be said to be due till an adjudication in that behalf was made. Before the Supreme Court a plea was raised against the aforesaid view of the High Court that in the matter of encashment of bank guarantee interference by courts is permissible only when fraud is pleaded and prima facie established and it is further shown that irretrievable injustice would otherwise be caused.

24. While allowing the appeal, the Supreme Court took the following view:

“A bank guarantee is an independent and distinct contract between the bank and the beneficiary and is not qualified by the underlying transaction and the primary contract between the person at whose instance the bank guarantee is given and the beneficiary. What the High Court has observed would be applicable only to the parties to the underlying transaction or the primary contract but can have no relevance to the bank guarantee given by the bank, as the transaction between the bank and the beneficiary is independent and of a different nature. In case of an unconditional bank guarantee the nature of obligation of the bank is absolute and not dependent upon any dispute or proceeding between the party at whose instance the bank guarantee is given and the beneficiary. Commitment of banks must be honoured free from interference by the courts and it is only in exceptional cases, that is to say, in case of fraud or in a case where irretrievable injustice would be done if bank guarantee is allowed to be encashed, the court should interfere. In this case fraud had not been pleaded and the relief for injunction was sought by the respondent contractor on the ground that special equities or the special circumstances of the case required it. The special circumstances and/or special equities which had been pleaded in this case were that there was a serious dispute on the question as to who had committed breach of the contract, that the contractor had a counter-claim against the appellant, that the disputes between the parties had been referred to the arbitrators and that no amount could be said to be due and payable by the contractor to the appellant till the arbitrators declare their award. These factors are not sufficient to make this case an exceptional case justifying interference by restraining the appellant from enforcing the bank guarantees. The High Court was, therefore, not right in restraining the appellant from enforcing the bank guarantee.”

25. There are two eventualities where invocation of bank guarantee can be in-juncted; (i) fraud vitiating the very foundation of the bank guarantee; (ii) Irretrievable harm or injustice which would make it impossible for the guarantor to re-imburse himself if he ultimately succeeds.

26. However, on the point of territorial jurisdiction, Mr. Trivedi contended that this Court has no jurisdiction to entertain the instant suit as neither does defendant reside nor does it work for gain in Delhi nor any part of cause of action has arisen in the territorial jurisdiction of this Court. According to Mr. Trivedi the entire work was to be executed at Agnoor in Bihar which is in the territorial jurisdiction of the Patna High Court and even otherwise this Court is precluded from going behind the transaction of the bank guarantee as the only relationship between the plaintiff and defendant No. 2 is through bank guarantee which was though executed in Delhi but was transmitted to Patna and project was also to be executed at village Agnoor district Jahanabad which is 92 K.m from Patna.

27. While convassing the proposition that territorial jurisdiction is vested in the place where the bank guarantee is transmitted for performance, Mr. Trivedi placed reliance upon Sough East Asia Shipping Co. Ltd. v. New Bharat Enterprises Pvt. Ltd. and Other, (1996) 3 SCC 443.

28. In this case admittedly the contract was executed in Bombay. It was also an admitted position that the performance of obligations and liabilities under the contract was required to be done in Bombay in-as-much-as cargo of livestock was to be transported in the ship for Kandla to Daman or Jeddah. In furtherance of the execution of the contract at Bombay, the respondent had executed the bank guarantees at Delhi and transmitted it to Bombay for performance of the contract. The question arose whether any part of the cause of action had arisen in Delhi.

29. It was held that merely because bank guarantee was executed at Delhi and transmitted to Bombay for performance, it does not constitute a cause of action to give rise to the respondent to lay the suit in Delhi and therefore the view that since bank guarantee was executed and liability was enforced from the bank at Delhi, the Court got the jurisdiction, can not be sustained as no part of its case of action had arisen within the jurisdiction of Delhi Court.

30. As regards defendant No. 2, it is only a nominee of defendant No. 1 because there is no contract between the plaintiff and defendant No. 2. It was only at the request of defendant No. 1 who was entitled to the bank guarantee that defendant No. 2 was made the beneficiary of the bank guarantee. Thus the only connection or relationship between plaintiff and defendant No. 2 is through subject bank guarantee which was not only issued at New Delhi but payment was also to be made at New Delhi. There is no other independent contract between them.

31. By introducing clause (c) to section 20 of cpc, the Legislature has widened the scope of section 20 of the cpc which deals with the territorial jurisdiction of the Court. In the unamended code the expression was “cause of action accrues” but in the amended provision the expression was changed to “whole or part of the action accrues.”

32. Since the bank guarantee was in favour of the nominee of the party to the contract which was not the case in South East Asia territorial jurisdiction of this Court is available to the plaintiff against the bank guarantee which was executed and payable at Delhi. Even if it is assumed that the bank guarantee was in favour of defendant No. 1 still ratio of South East Asia's case will not apply.

33. In Sough East Asia's case the bank guarantee was in favour of the party to the contract and since the entire cause of action accrued at Bombay qua main party to the contract, it was held that mere execution of the bank guarantee at Delhi would not provide the territorial jurisdiction to Delhi High Court.

34. In the instant case the bank guarantee was subject to payment of Rs. 30 lacs by defendant No. 1 to the plaintiff and since defendant No. 1 has not paid the mobilisation advance to the plaintiff, the bank guarantee prima facie is void under provisions of Sections 25 and 10 of the Contract Act because no consideration floated with respect to the bank guarantee. Section 25 provides as under:—

“25. Agreement without consideration, void, unless it is in writing and registered or is a promise to compensate for something done or is a promise to pay a debt barred by limitation law.-

35. An agreement made without consideration is void, unless -

(1) it is expressed in writing and registered under the law for the time being in force for the registration of documents and is made on account of natural love and affection between parties standing in a near relation to each other; or unless.

(2) it is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to do; or unless.

(3) it is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorized in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits.”

36. Section 10 reads as under:—

“10. What agreements are contracts - All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.

Nothing herein contained shall effect any law in force in India and not hereby expressly repealed by which any contract is required to be made in writing or in the presence of witnesses, or any law relating to the registration of documents.”

37. Where original contract between the parties qua the bank guarantee is sought to be held as void, a beneficiary with respect to whom no contract is entered into does not come into existence till there is a valid contract. If the beneficiary to a bank guarantee derives its existence from the right of a party to the main contract and at whose request the bank guarantee is issued to the beneficiary, the beneficiary can not invoke the bank guarantee if there is specific stipulation in the bank guarantee that because of a contract between the parties that the said bank guarantee is being issued.

38. Section 10 of the Indian Contract Act provides that an agreement can become a contract if it satisfies the requirements of a contract to be valid and one such requirement is the existence of consideration. If there is no consideration to a contract then Section 25 of the Contract Act renders such a contract void. Thus, defendant No. 2 comes on the scene only because of the contract between the plaintiff and defendant No. 1

39. Since the plaintiff has not received any mobilisation advance to secure which the bank guarantee was given, defendant No. 1 would have no right to negotiate bank guarantee even if the bank guarantee was issued in his favour as defendant No. 1 is only a nominee of the actual beneficiary.

40. It would be wholly illegal and unjust proposition that simply because a beneficiary is a third party to a contract it should have better rights than the party to the contract itself and if it is allowed every party to a contract will make a third party a beneficiary and each third party will always be said to be entitled to rights although the main contract is void and the main party to the contract itself has no rights.

41. Relationship of the plaintiff with defendant No. 2 stems from subject bank guarantee and thus the entire cause of action qua subject bank guarantee namely its execution, performance/payment is only at Delhi and hence the jurisdiction of this Court.

42. From any angle or aspect we may examine or hold up the matter, there is no escape from the conclusion that this Court does have a territorial jurisdiction to entertain the suit qua all the defendants. Issue is answered accordingly.