1. This appeal arises out of an order passed by the Trial Court in an application of the applicant Allied Resins Chemicals Ltd., for inter alia, (a) an injunction, restraining the defendant No. 1 whether by itself or its servant or agent or otherwise howsoever from receiving or purporting to receive or demanding or purporting to demand any payment or acting in pursuance of the said guarantee dated 20th July, 1979, the said extension dated 14th December 1979 and the said demands dated 23rd July and 26th July, 1980 or any of them in any way. (b) An injunction restraining the defendant No. 2 whether by itself or its servant or agent or otherwise howsoever from making or purporting to make any payment or acting in pursuance of the said guarantee dated 20 July 1979, the said extension dated 14th Dec. 1979 and the said demands dated 23rd July and 26th July 1980 or any of them in any way.

2. The plaintiff-appellant carries on business under the name and style of R. Sen & Company, Metal Division, as sole proprietor thereof. The defendant respondent No. 1 is a Government of India undertaking which acts as the canalising agent in respect of the imports of chemicals and products used by the plaintiff appellant. The plaintiff appellant in the said business proposed to import through the defendant No. 1 a quantity of 11 metric tonnes molyoride. Regarding the said import a bank guarantee dated 20th July 1979 was furnished by the defendant No. 2 United Industrial Bank Ltd. in favour of the defendant No. 1. The said Bank guarantee is set out herein : --

"Bank Guarantee No. 40/54 dated 20-7-79. The Minerals & Metals Trading Corp. of India Ltd. New Delhi - 110002.

In consideration of your having agreed to import for M/s. R. Sen & Co. Metal Division, 13, Camac Street, Calcutta-17 a quantity of 11 M/T Moly Oxide and to be sold to them on high seas/ex-jetty/ex-godown basis at the sale price to be fixed by you at the request of said M/s. R. Sen & Co. -- Metal Division. United Industrial Bank Ltd. having registered office at 7, Red Cross Place. Calcutta-1, hereby irrevocably undertake and promise to pay you/your successors or assigns on demand without demur equivocation dispute or delay and without reference to the said M/s. R. Sen & Co. Metal Division all or any sums of money up to a maximum of Rs. 10,00,000/- in case M/s. R. Sen & Co. -- Metal Division cancel the contract in full or in part after you have placed orders on your foreign sailers or fail to take delivery of the materials in full or in part when offered by you.

2. We further agree that the guarantee herein contained shall remain in force and effect for a period of one year or till such time as you certify that the said M/s. R. Sen & Co. Metal Division, have fulfilled all the conditions laid down above whichever is earlier and that you shall have a right to enforce your claim with the Bank under this guarantee for a further period of six months from the expiry of the guarantee we undertake not to revoke this guarantee during its currency without your written consent.

3. We further agree that you shall have the fullest liberty. Without affecting in any manner our obligations hereunder to extend the time during which M/s. R. Sen & Co. Metal Division, have to take delivery of the material and we shall not be released from our liability under this guarantee by reasons of any such authorization or extension being granted to the said M/s. R. Sen & Co. -- Metal Division -- or for any forbearance on your part to said M/s. R. Sen & Co., Metal Division; we further agree that your decision as to whether the said M/s. R. Sen & Co., Metal Division failed to carry out their obligation shall be final and binding on us.

4. We further agree that the guarantee shall not be affected by any change in your constitution or that of the said M/s. R. Sen & Co., Metal Division, 13, Camac Street, Calcutta-17.

5. Notwithstanding anything contained hereinbefore our liability under this guarantee is restricted to Rs. 10,00,000/- (Rupees ten lakhs only). Our guarantee shall remain in force until January 1980 or till such time as you certify that the said M/s. R. Sen & Co., Metal Division, have fulfilled all the conditions laid down above whichever is earlier. Unless a claim under this guarantee is filed against us within six months from that date all your rights under this guarantee shall be forfeited and we shall be relieved and discharged from all liability thereunder provided the claim has arised within the validity of the guarantee.

Signature and seal of Authorised Bank Official. For United Industrial Bank Ltd.

Sd/- Chief Manager, Calcutta Main Branch"

2A. There were some disputes and differences between the plaintiff-appellant and the defendant-respondent No. 1 regarding such import. It was and is the case of the plaintiff-appellant that the defendant No. 1 did not offer delivery of the goods contracted for but offered delivery of the goods of different marking. It is further contended that the defendant No. 1 was seeking to enforce the bank guarantee unlawfully and illegally without authority of law. Accordingly, the suit was filed and an application was made as prayed for. After filing of affidavits the learned Judge by his judgment and order dated 10th Nov. 1980 dismissed the said application. Against that, the plaintiff-appellant preferred this appeal and made an application for the stay of the operation of the order wherein certain interim orders were passed. Now this appeal has come up before us for final hearing.

3. On behalf of the plaintiff-appellant and also on behalf of the respondent No. 1 various cases were cited before us in respect of bank guarantee; as to whether the Court should pass an interim order restraining the bank from making any payment pursuant to the bank guarantee. On behalf of the plaintiff-appellant the main contention made was that this bank guarantee was unlike any other guarantee and that, accordingly, the strict policy followed by the court regarding passing of an order of injunction against the enforcement of the bank guarantee would not be applicable in the present case. It was sought to be argued on behalf of the appellant that in the present case the bank guarantee furnished is not an absolute or unconditional bank guarantee but that there is a condition to the same which is provided in the end of the first paragraph of the said bank guarantee to the following effect : --

".....in case M/s. R. Sen & Co.-- Metal Division, cancel the contract in full or in part after you have placed orders on your foreign sellers or fail to take delivery of the materials in full or in part when offered by you"

.

4. Mr. Sen appearing on behalf of the plaintiff-appellant has contended that this imposes a condition and, therefore, if it is shown that such condition has not been fulfilled then the beneficiary cannot enforce the said bank guarantee. In this case, the case of the plaintiff-appellant is that the defendant No. 1 has failed and neglected to offer delivery of the goods in accordance with the contract.

5. To this Mr. Bhaskar Gupta appearing for the defendant No. 1 has submitted that it is not for this court to go into this question as to whether the delivery has been offered or not so far as enforcement of Bank Guarantee is concerned. In this context he has referred to Clause 3 of the Guarantee itself which provides that the decision of the beneficiary as to whether the appellants had failed to carry out their obligation shall be final and binding on the Bank providing the Guarantee. In the letter dated July 23, 1980 calling upon the bank to make payment, it has been stated by the beneficiary that the appellants have failed to take delivery of 6.8 M.T. of Moly Oxide valued atRs. 16,61,709.80 P. offered by the beneficiary in terms of their Invoice, out of the consignment arrived at Calcutta Port on 25th of April, 1980. Accordingly, the beneficiary had invoked the said Guarantee and demanded the payment of Rs. 10,00,000/- on the basis of failure to take delivery. This accofding to Mr. Gupta was such a decision within the meaning of Clause 'C' of the Bank Guarantee.

6. In reply to the same Mr. Sen has submitted that it is no doubt true that there is such a clause in the Bank Guarantee making the decision of the beneficiary regarding the compliance of the obligation of the appellants as final and binding on the Bank. However he has submitted that, as already submitted, the Bank Guarantee is not an unconditional one. According to him, there has been no offer to deliver the goods at all and in such a case the Bank Guarantee cannot be invoked as the condition specified in Clause 1 of the Bank Guarantee has not been fulfilled. He has submitted that where there has been absolutely no offer at all, the question of not taking delivery does not arise and there the question of any final decision of the beneficiary cannot and does not arise and the court is entitled to go into this question and grant the injunction in spite of such "finality" clause in the Bank Guarantee. He has also contended that the person at the request of whom the Bank has furnished such Bank Guarantee has a locus standi in the matter and that it cannot be said that such Guarantee is purely a matter of contract between the Bank and the beneficiary and that the principal debtor at whose instance the Bank provided the Guarantee has no voice in the matter. He is a party to the Bank guarantee and at least this entitles him to raise an objection to the question of enforcement of such a bank guarantee. He has also submitted in this context that there is a difference between the letter of credit and bank guarantee so far as the rights of the beneficiary are concerned.

7. We shall now deal with various decisions cited before us by the learned Advocates appearing for the parties. In the case of United Commercial Bank v. Bank of India, it was a case of letter of credit. However, the Supreme Court in this Reference stated as follows : --

"In the light of these principles, the rule is well established that a bank issuing or confirming a letter of credit is not concerned with the underlying contract between the buyer and seller. Duties of a bank under a letter of credit are created by the document itself, but in any case it has the power and is subject to the limitations which are given or imposed by it, in the absence of the appropriate provisions in the letter of credit.

It is somewhat unfortunate that the High Court should have granted a temporary injunction, as it has done in this case, to restrain the appellant from making a recall of the amount of Rs. 85,84,456/- from the Bank of India in terms of the letter of guarantee or indemnity executed by it. The courts usually refrain from granting injunction to restrain the performance of the contractual obligations arising out of a letter of credit or a bank guarantee between one bank and another. If such temporary injunctions were to be granted in a transaction between a banker and a banker, restraining a bank from recalling the amount due when payment is made under reserve to another bank or in terms of the letter of guarantee or credit executed by it, the whole banking system in the country would fail.

In view of the banker's obligation under an irrevocable letter of credit to pay, his buyer customer cannot instruct him not to pay. In Hamzeh Malas v. British Imex Industries Ltd. (1958) 2 QB127, the plaintiff, the buyers applied for an injunction restraining the sellers, the defendants, from drawing under the credit established by the buyer's bankers. This was refused, Jenkins, L.J. stating at p. 129, that:

.....the opening of a confirmed letter of credit constitutes a bargain between the banker and the vendor of the goods which imposes on the banker an absolute obligation to pay..... and that 'this was not a case in which the Court ought to exercise its discretion and grant the injunction'. The same considerations apply to a bank guarantee."

In this context the Supreme Court pointed out that the letter of credit sometimes resembles and is analogous to a contract of guarantee and a reference was made to the decision in the case of Elian and Rabbath v. Mastas and Mastas, (1966) 2 Lloyd's Rep 495, wherein Lord Denning, M. R. while refusing to grant an injunction stated :

"......a bank guarantee is very much like a letter of credit The courts will do their utmost to enforce it according to us terms. They will not, in the ordinary course of things, interfere by way of injunction to prevent its due' implementation. Thus they refused in Malas v. British Imex Industries Ltd. ( 1958-2 QB 127). But that is not an absolute rule. Circumstances may arise such as to warrant interference by injunction. A bank which gives a performance guarantee must honour that guarantee according to its terms. In R. D. Harbottle (Mercantile) Ltd. v. National Westminster Bank Ltd. ( 1977) 3 WLR 752. Kerr. J. observed the position in principle. We would like to adopt a passage from his judgment at p. 761 : It is only in exceptional cases that the courts will interfere with the machinery of irrevocable obligations assumed by banks. They are the life-blood of international commerce. Such obligations are regarded as collateral to the underlying rights and obligations between the merchants at either end of the banking chain. Except possibly in clear cases of fraud of which the bank have notice, the courts will leave the merchants to settle their disputes under the contracts by litigation of arbitration as available to them or stipulated in the contracts. The courts are not concerned with their difficulties to enforce such claims; these are risks which the merchants take. In this case the plaintiffs took the risk of the unconditional wording of the guarantees. The machinery and commitments of banks are on a different level. They must be allowed to be honoured, free from interference by the courts. Otherwise trust in international commerce could be irreparably damaged."

Accordingly, the Supreme Court allowed the appeal and set aside the order passed by the High Court granting a temporary injunction restraining the United Commercial Bank from recalling the amount specified from the respondent No. 1, the Bank of India and the application filed by the plaintiffs for grant of a temporary injunction was rejected. In this context we may set out the observations of the Supreme Court.

"The grant of a temporary injunction by the High Court under Order 39, Rules 1 and 2 appears to be wholly unwarranted. For reasons already stated, the appellant was well within its rights in making a recall of the amount of Rs. 85,84,4567- paid 'under reserve' and/or in terms of the letter of guarantee or indemnity. We fail to appreciate any justification for grant of a temporary injunction to the plaintiffs, the effect of which virtually is to restrain a transaction between a banker and a banker. The courts view with disfavour the grant of such temporary injunction.

In the instant case, the High Court has assumed that the plaintiffs had a prima facie case. It has not touched upon the question where the balance of convenience lay, nor has it dealt with the question whether or not the plaintiffs would be put to irreparable loss if there was no injunction granted. In dealing with the prima facie case, the High Court assumes that the appellant was in breach. There is no basis for this assumption at all. The High Court in this case has pre-judged the whole issue by holding that the appellant, could not unilaterally impose the condition of payment 'under reserve' nor was it justified in holding that the documents were clean. The 'question whether the appellant was in breach is an issue to be tried in the suit. The question whether the documents were 'clean' or 'unclean' is a vexed question on which no opinion could be expressed at this stage. It is also premature at this stage to assume that there was no 'due presentation' of the bills of exchange and their refusal.

No injunction could be granted under Order 39, Rules 1 and 2 of the Code unless the plaintiffs establish that they had a prima facie case, meaning thereby that there was a bona fide contention between the parties or a serious question to be tried. The question that must necessarily arise is whether in the facts and circumstances of the case, there is a prima facie case and, if so, as between whom? In view of the legal principles applicable, it is difficult for us to say on the material on record that the plaintiffs have a prima facie case. It cannot be disputed that if the suit were to be brought by the Bank of India, the High Court would not have granted any injunction as it was bound by the terms of the contract what could not be done directly cannot be achieved indirectly in a suit brought by the plaintiffs."

8. In the case of Bird & Co. v. Tripura Jute Mills, reported in (1979) 83 Cal WN 802 it was an appeal before the Division Bench of this Court arising out of an order passed by the trial court in an interlocutory proceeding in the suit. Therein the following clauses were there.

"2.-- The Bank undertakes to indemnify the purchaser and keep the purchaser indemnified to the extent of a sum of Rs. 10,38,440/- (Rupees ten lakhs thirtyeight thousand four hundred and forty only) from and against all such losses, damages, costs charges or expenses that may be caused to or suffered by the Purchaser in relation to the advance payment to be made by the Purchaser to the Contractor as aforesaid by reason of any default or defaults on the part of the Contractor in repayment of the said advance as aforesaid and the Bank hereby undertakes to pay to the Purchaser forthwith on demand and without any demur any sum or sums not exceeding in total the said sum of Rs. 10,38,440/- (Rupees ten lakhs thirtyeight thousand four hundred and forty only) as may be claimed by the Purchaser to be due from the Contractor to the Purchaser by way of refund or such advance or any portion thereof by reasons of such default or defaults on the part of the contractor in repayment as aforesaid.

3. The Bank doth hereby agree that the decision of the Purchaser, as to whether the Contractor has made any default or defaults in repayment of the said advance thereof shall be binding on the Bank. The Bank shall not be entitled to raise any dispute on the decision of the Purchaser in this regard but shall on demand pay the sum of money due forthwith without any objection or demur."

There the similar application was made for injunction restraining the Bank from making any payment which was ultimately not allowed and the interim order was vacated. Against that an appeal was preferred. In this context the Division Bench observed as follows :

"In view of the provisions contained in clause 3 of the Guarantee which we have earlier set out, we are of the opinion that the learned trial judge in the facts and circumstances of this case was justified in not passing any order of injunction. The said clause specifically provided that the decision of the purchaser as to whether the contractor has made any default or defaults in repayment of the said advances thereof shall be binding on the bank and the Bank shall not be entitled to raise any dispute on the decision of the purchaser in this regard but shall on demand pay the sum of money due forthwith without any objection or demur. The decision of the Division Bench in the case of The Minerals & Metals Trading Corporation of India Ltd. v. Suraj Balaram Sethi ( 1970). 74 Cal WN 991 clearly lends support to the view that if the contract of guarantee contains a provision to this effect, appropriate case of injunction is not made out and no order of injunction should be passed. The decision of the Division Bench in the case of State Bank of India v. Economic Trading Co. S. A. A. is not of any material assistance as the question primarily involved in the said decision was whether in view of an earlier injunction which had been passed by the Court and against which no appeal had been preferred and which was in force, the order which was subsequently passed was justified or not. The decision of the Court of Appeal in England in the case of Edward Owen Engineering Ltd. v. Barclays Bank International Ltd. ( 1977) 3 WLR 764 also appears to lend support to the view that no order of injunction shall be passed. Following the decision of the Division Bench of this Court reported in ( 1970) 74 Cal WN 991 we must, therefore, hold that this is not a fit case where an order of injunction should be passed."

.

This decision was referred to in the case of Texmaco Ltd. v. State Bank of India reported in (1979) 83 Cal WN 807. It was an appeal from the judgment and order dated 12th May, 1978 delivered by Sabyasachi Mukharji, J. whereby his Lordship dismissed the appellant's application for injunction restraining the defendant No. 1 State Bank of India from making any payment to the defendant No. 2 or defendant No. 3 under a performance Guarantee mentioned in paras 8 and 9 of the petition. By the said order his Lordship rejected the appellant's prayer for injunction restraining the defendant No. 2 or the defendant No. 3 from enforcing or realising any payment under the performance Guarantee mentioned hereinabove. The relevant clauses in the Bank Guarantee in the said case are given as follows :--

"1. In consideration of the aforesaid premises at the request of TEXMACO, we, the Bank, hereby irrevocably and unconditionally guarantee that TEXMACO shall perform, in an orderly manner, their contractual obligations under the Bank to Bank contract, and in the event of TEXMACO'S failure to do so, the Bank shall pay to STC on its first demand, any amount up to Rs. 49,50,570/- (Rupees fortynine lacs fifty thousand five hundred and seventy only) being 5% of the price, without any contestation, demur or protest and/or without any reference to TEXMACO and/or without questioning the legal relationship subsisting between STC and TEXMACO.

2. Our obligation under this guarantee shall be reduced automatically in proporatkm to the value of the vagons for which the guarantee period has expired from time to time in terms of the Bank to Bank contract.

3. The decision of the STC as to the liability of the Bank under this guarantee and the amounts payable thereunder shall be final and binding on the Bank. The Bank shall pay forthwith the amount demanded by STC notwithstanding any dispute between STC and TEXMACO."

After considering all the relevant decisions in this point the Appeal Court dismissed the appeal and in this context observed as follows :--

"In our opinion the terms of the performance guarantee in the instant case are very wide indeed. The performance guarantee is a distinct and separate contract to which only respondent State Bank and respondent STC are parties. By and under the said guarantee State bank irrevocably and unconditionally undertook to pay to the STC the said sum of Rs. 21,51,87/- on the first demand being made, and whenever the STC decided that the Bank was liable to pay under the said guarantee. The plaintiff at whose instance this performance guarantee was executed knew that under the terms of this performance guarantee the STC was the sole arbiter to decide as to whether there was any liability foisted on the Bank to pay any money undertaken by the Bank to pay under the guarantee, and indeed, in our opinion in terms of this performance guarantee the STC is the sole arbiter to decide as to whether the respondent State Bank was liable and obliged to pay any sum payable under this guarantee. In letter dated 24th June, 1977, written by the respondent State bank to the appellant, the respondent State bank informed the appellant that the STC had invoked the guarantee and it was incumbent on them to pay to STC the guarantee sum of money. The STC's letter dated 15th June, 1977 to the State Bank Calcutta Main Branch at 1 Strand Road, appearing at p. 73 of the Paper Book, inter alia, states as follows :--

"The State Bank of India Calcutta, Main Branch, 1, Strand Road, Calcutta-700001.

Sub:-- Invocation of your Guarantee G. L. No. 54/73 dt 26-2-73 for Rs. 49,50,5707-

*** Notwithstanding the foregoing STC maintains that Texmaco failed to perform that orderly manner its obligations under the aforesaid back to back contract In view of the foregoing STC hereby calk upon you to make full payment to it of the whole of the guarantee amount of Rs. 21,51,875/- (Rupees Twentyone lacs fiftyone thousand eight hundred and seventy five only) under your aforesaid performance guarantee".

9. By its letter dated 15th June 1977 Addressed to the respondent State Bank the respondent STC wrote inter alia :

"It view of the foregoing STC hereby calls upon you to make full payment to it of the whole of the guaranteed amount of Rs. 21,51,8757- (Rupees twentyone lacs fifty-one thousand eight hundred and seventyfive only) under your aforesaid performance guarantee"

.

10. At the foot of the said letter the STC wrote to the appellant as follows :

"As already intimated and stated in our above communication to the State Bank of India, Calcutta Main Branch, 1 Strand Road, Calcutta, this is once again to place on record that as agreed to by and between you and us STC is contesting the claim of the community of Yugoslav Railways ZTPs for payment to them of the amount guaranteed under our aforesaid performance guarantee for Rs. 91,95,000/- furnished to the community of Yugoslav Railways ZTPs by virtue of the Export Contract But, in the event of the claims of the community of Yugoslav Rlys/Rudnap being upheld or our a foresaid performance guarantee in favour of the community of Yugoslav Railways/ZTPs being enforced we would enforce payment under your aforesaid performance guarantee.

Thanking you and assuring you of our best services at all times."

It is to be pointed out that it was observed therein that the performance guarantee is a distinct and separate contract to which only respondent State Bank and respondent STC are parties.

11. In the case of National Project Construction Corporation Ltd. v. G. Ranjan, a Division Bench of this court was hearing a revisional application arising out of three different orders of injunction issued at the instance of the opposite parties, restraining the petitioner Corporation from enforcing the Bank guarantees executed in its favour. The relevant portion of the Bank guarantee was as follows : --

"We the Bank of Baroda (Tollygunj Branch, Calcutta) do hereby guarantee the due recovery by the Corporation of the said advance along with interest thereon as provided according to the terms and conditions of the contract. If the said contractor fails to utilise the said advance for the purpose of the contract and/or the said advance together with interest thereon as aforesaid is not fully recovered by the Corporation, we, the Bank of Baroda (Tollygunj Branch, Calcutta), hereby unconditionally and irrevocably undertake to pay to the Corporation on demand and without demur to the extent of the said sum of Rs. 3,50,000/- plus interest at the rate of 10% per annum and any claim made by the Corporation on us for the loss or damage caused to or suffered by the Corporation by reason of the Corporation not being able to recover in full the said sum of Rs. 3,50,000/-as aforesaid."

In this context the Court held that the Bank Guarantee furnished by the Bank was conditional one and not absolute. It may be pointed out that the said Bank guarantee did not provide that the decision of the beneficiary was final. In this context the Division Bench held as follows :

"That being so, there is prima facie no reason according to us, why the Bank guarantee cannot be enforced by the petitioner subject, of course, to the fulfilment of the conditions as laid down therein. Here, as we have seen that the contract between the petitioner and the opposite party has already been terminated. The amount of mobilisation loan advanced by the petitioner and the amounts recovered in that account through the running bills not being in dispute, the petitioner is entitled to fall back upon the Bank guarantee when the balance sum had not been paid. Petitioner's right to realise that balance is not dependent upon adjudication of the dispute raised and proposed to be referred to Arbitration. To this extent, the Bank guarantee can very well be enforced on its own terms irrespective of any other consideration"

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12. After going into the different clauses of the contract, in the facts of that case it was held that the learned Subordinate Judge acted in an improper exercise of the jurisdiction restraining the petitioner from enforcing the bank guarantee by pay Order and that the impugned order of injunction passed by him could not be sustained. The revisional application was allowed accordingly.

13. In the case of United Commercial Bank v. Hanuman Synthetics Ltd. it was a case of letter of credit. The Division Bench held as follows :

"The law is well-established that the bank which has opened a letter of credit is not concerned with the relationship between the seller and the customer nor with the question whether the seller had performed its contracted obligation or not. The bank is also not concerned with the question whether the seller is in default in any way or not. The machinery and the commitment of the bank are on a different level. It has been emphasized by the English Courts and also by the Supreme Court that the bank must be allowed to honour its commitments under a letter of credit free from interference by the Courts, otherwise trust in international commerce will be irreparably damaged. The dispute as to the sufficiency of the performance between the buyer and the seller or between the seller and the buyer cannot be the reason for withholding the payment under a letter of credit. The bank is only required to see whether the event has happened on which its obligation to pay has arisen.

In this case, the Central Bank was required to pay in terms of the letter of credit against certain documents. The documents have been duly tendered and accepted by the Central Bank and the event has happened on which the Central Bank is now obliged to pay in terms of the letter of credit. Whether the goods that have been delivered are of merchantable quality or not or whether the goods are up to the contract or not or whether they are of the specified quality or quantity cannot be gone into by the bank. Similarly, the question whether the goods correspond with the description is also a question that must be resolved by the buyer and the seller in an appropriate proceeding. But the Central Bank which has opened a confirmed and irrevocable letter of credit cannot refuse to pay even when all the terms of the letter of credit have been fulfilled to its satisfaction on the plea that the goods are not up to the contract or do not correspond with the description. The bank is not entitled to withhold payment after its obligation to pay has arisen merely because an allegation of fraud has been made against the seller. As Browne L. J. emphasized in the case of Edward Owen (1977-3 WLR 764) that it was not enough to allege fraud. If that was possible in law, all that a buyer had to do to stop payment under an irrevocable letter of credit was to allege fraud against the seller. It is very easy to allege fraud whenever there is a dispute as to quantity or quality of the goods. But that cannot be the ground on which the bank will be entitled to refuse payment. As Lord Denning has emphasized that the rule, in the case of a confirmed irrevocable credit in respect of contract for the sale of goods, is that the confirming bank is in no way concerned with disputes between the buyer and the seller as to the contract of sale which underlies the credit and it is a strict rule. In order to come within the exception, the buyer must not only allege but clearly establish that the documents that were presented by the beneficiary were forged or fraudulent."

14. The Division Bench held that there was no slightest ground for withholding the payment to the United Commercial Bank and the interim injunction passed by this Court was vacated and the appeal was allowed.

15. Three other decisions were cited by Mr. Sen for the proposition that the bank guarantee and the letter of credit do not stand in the same footing and further the purchaser at whose instance the bank guarantee was given, is a party to such bank guarantee. In this connection he has firstly relied on the decision in the case of The Minerals and Metals Trading Corporation of India Ltd. v. Suraj Balaram Sethi, reported in (1970) 74 Cal WN 991 wherein the Division Bench observed as follows : --

"It is true that the guarantees were executed by the Bank in favour of the appellant; it is equally true that the Agent is not a party to either of the guarantees. The guarantees, however, have a dual aspect. They are not merely contracts between the appellant and the Bank; they are also securities furnished by the Agent in terms of the Agreements between the Agent and the appellant. In seeking to enforce the bank guarantees the appellant is in effect seeking to realise the securities furnished by the Agent on the basis that it has suffered loss and the loss, has been occasioned by negligence or default on the part of the Agent."

This decision was cited in support of the contention that Section 126 of the Contract Act is applicable in this case and the seller is also a party to the bank guarantee. I should point out another observation in the said judgment to the following effect:

"The Courts are slow to interfere with the operation of irrevocable letters of credit not merely on the ground of their importance in international trade but also on the ground that under the terms and conditions of their issue, the beneficiary, who is often the seller is assured of payment by the bank once he complies with the terms and conditions of the letter of credit irrespective of his non-compliance with the terms of the contract into which he enters with the buyer, or in other words, on the ground of autonomy of the letter of credit. Bank guarantee is an important instrument in the internal trade of a country; sometimes it also plays a useful role in international trade. It is not enough to make a distinction between a bank guarantee and a letter of credit on the basis that one is important in international trade and the other in internal trade. The more important point of distinction is the autonomy of an irrevocable letter of credit and the dependence of a bank guarantee on a contract between the beneficiary of the bank guarantee and a third party. Section 126 of the Contract Act defines a contract of guarantee as a contract to perform the promise or discharge the liability of a third person in case of his default. The obligation is not an unqualified obligation. By an irrevocable letter of credit, on"

the other hand, the issuing bank gives an undertaking to the beneficiary that all bills drawn in compliance with the terms of the letter of credit will be honoured without qualification. The Law of Bankers Commercial Credits by Gutteridge and Megrah 1st edition, p. 38. Payment under an irrevocable letter of credit, therefore, does not depend on the performance of obligation on the part of the seller except those which the Letter of Credit expressly imposes. The obligation is of the Bank to the beneficiary. No third party comes into the picture. In the case of a bank guarantee, by definition, the third party is always on the scene. Unless there is some act of omission or commission on the part of the third party, payment under a bank guarantee does not become due. In other words, a bank guarantee does not enjoy the autonomy of a letter of credit.

The guarantee may, however, provide that the decision of the beneficiary on the question of loss or damage suffered by him or on the question of default or negligence by reason of which the guarantee becomes enforceable will be final. A bank guarantee like any other contract is no more or no less than what the parties make it. Payment under a bank guarantee like payment under a letter of credit becomes due only on compliance with the terms on which the Bank is to pay under the respective documents. Nobody has ever claimed that a letter of credit becomes payable until and unless the conditions of payment are satisfied; likewise, conditions for payment under a bank guarantee have to be satisfied before payment can be legitimately claimed. In order to issue a temporary injunction restraining the enforcement of a bank guarantee the Court has to come to the conclusion that having regard to the terms and conditions of the guarantee payment under the guarantee has not become due or at least there is a fair and arguable prima facie case for such a contention."

In the similar context there is a decision in the case of State Bank of India v. Economic Trading Company S.A.A., . The Division Bench followed the observations made in the case of Minerals and Metals Trading Corporation of India Ltd. v. Surajbalaram Sethi, (1970-74 Cal WN 991) (supra).

16. In Shree Ram Cloth Stores v. Trading Corporation of Bangladesh reported in (1980) 1 Cal HN 132 a distinction was sought to be made between a bank guarantee and a letter of credit. I ought to point out that this decision though reported in (1980) 1 Cal HN 132 was a decision given on 26th of August, 1975.

17. In this context I may also refer to my decision in the case of Surendra Engineering Works (P) Ltd. v. Technicon India Private Ltd. wherein the judgment was delivered on 11th June, 1985 and where I have considered all these decisions.

18. In our opinion at this stage the question before us is whether we shall interfere with the discretion exercised by the learned trial Judge. As pointed out in the case of Bird & Co. v. Tripura Jute Mills (1979-83 Cal WN 802) we are not concerned in this appeal with what will ultimately happen in the suit. In this appeal this Court is concerned with an order passed by the learned trial Judge in an interlocutory application. As no proper prima facie case has been made out for any order of injunction, the learned trial Judge exercised his discretion properly in refusing to pass any order of injunction. In our opinion also, no prima facie case has been made out on behalf of the plaintiff-appellant. The importance of a bank guarantee has been pointed out in the aforesaid decisions. We may also point out that the latest decisions of both the Division Benches of this Court and the Supreme Court of India point out that there is no practical difference between a bank guarantee and a letter of credit. The Bank and the beneficiaries are the only parties in a Bank guarantee. It may be pointed out that we are merely hearing the appeal from an order passed in an interlocutory application in the suit. We are not hearing the suit. At this stage we are only concerned with the prima facie case and balance of conveniences. In our opinion, it all depends on the facts of each and every case and the language of the particular document, irrespective of the question whether it is a bank guarantee, or a letter of credit. The question is whether the terms and conditions for enforcement of the bank guarantee have been complied with or not. We agree with Mr. Sen that the bank guarantee in the present case, as it clearly shows from Clause (1) itself, is not an absolute and unconditional one from one point of view. The last four sentences as we have set out hereinabove show that it is a conditional one. But having regard to Clause (3) of the said guarantee, i.e. the 'finality' clause, the result is the same. By virtue of Clause (3) of the said guarantee the decision of the beneficiary as to whether the plaintiff-appellant has failed to carry out their obligation shall be final and binding on the bank furnishing the bank guarantee. Even if according to Clause (1) such payment is not unconditional but whether the condition has been fulfilled or not and whether the obligation has arisen or not will depend on the decision of the beneficiary itself. We are unable to accept the interpretation of Mr. Sen regarding Clause (3) to the effect that the question of 'final decision' of the beneficiary has no application when the goods have not been offered. The said question is covered by and comes within the scope of 'carrying out the obligation'. In their letter demanding the amount from the bank, the beneficiary is saying that the plaintiff-appellant had failed to take delivery of the goods. That contemplates that the goods were offered for delivery. In any view of the matter whether the goods were offered for delivery or not and whether they were taking delivery or not, it is a dispute relating to 'carrying out the obligation' of the purchaser within the meaning of Clause (3) and there is a finality to the decision of the beneficiary in respect of that matter which is binding on the bank and the Guarantee becomes enforceable. Therefore, in our view no prima facie case has been made out for grant of such injunction and no case has been made out for interfering with the discretion exercised by the learned trial Judge in refusing to pass an interim order of injunction. Further in view of the decisions referred to above, on the question of balance of convenience also we are against the plaintiff-appellants. As pointed out by the Supreme Court in the case of United Commercial Bank v. Bank of India (supra) and other decision, in such a case no temporary injunction should be granted.

19. In that view of the matter we dismiss this appeal with costs. The interim order passed by the Appeal Court, staying the operation of the order appealed from, is vacated.

20. It may be recorded that it has been stated before us that pursuant to the interim order of this Court, out of 6.8 metric tonnes of materials, a quantity of 3 tons has already been sold at a price for Rs. 4,23,000/-. The total price payable was Rs. 16,61,751.80P. and accordingly the balance sum of Rs. 12,38,759.80 P. is still due and owing to the beneficiary according to them. They are also claiming a further sum on account of Customs duty and Wharfage charges etc. We direct that the defendant No. 1 would sell the goods pursuant to the liberty given by the interlocutory order of this Court which shall continue. However, if any offer is made by the plaintiff-appellant or any other customer procured by the plaintiff-appellant, which is an offer higher than the offer already made in respect of the goods, or if no offer made, a reasonable offer, then the respondent No. 1 shall sell such goods to such offerers.

21. Prayer is made on behalf of the plaintiff-appellant under Article 134A of the Constitution of India for a certificate for appeal to the Supreme Court. However, we are of the view that we are not in a position to certify that the case involves a substantial question of law of general importance or that any question involved needs to be decided by the Supreme Court. Accordingly, we reject such prayer.

22. Prayer is also made on behalf of the appellant for stay of the operation of the order. There will be a stay of the operation of the order till 13th January, 1986.

23. In view of the order made in the Appeal today the application is disposed of accordingly.

24. All parties concerned to act on a signed copy of the operative portion of the judgment.

Prabir Kumar Majumdar, J.

25. I agree.