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Case Number

appeal from original side no .84 of .1977

Judges

Mr. Justice A.N. Sen
Mr. Justice B.C. Basak

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Smart Summary

Judgment Summary — A. N. Sen, J. (Interlocutory Appeal)

Factual and Procedural Background

The plaintiff-appellant entered into a supply contract with defendant/respondent No. 1 under which respondent No. 1 agreed to make advance payment to the appellant. A bank guarantee was executed by the chartered bank (respondent No. 2) dated 28 April 1975 to secure advances. The guarantee promised indemnity up to Rs. 10,38,440 and contained a clause (clause 3) making the purchaser's decision as to whether the contractor had defaulted binding on the bank; the guarantee was effective from payment of the advance and valid until 24 April 1976, not to be revoked without purchaser's consent.

Respondent No. 1 paid the advance of Rs. 10,38,440. On 12 April 1976 respondent No. 1 rescinded the contract, and on 16 April 1976 called upon the bank to pay the guarantee sum. The appellant filed suit on 27 September 1976 seeking (a) delivery up and cancellation/discharge of the guarantee, (b) a declaration that respondent No. 1 is not entitled to claim or receive money under the guarantee, and (c) perpetual injunction restraining respondent No. 1 from claiming or realising amounts under the guarantee.

The appellant applied for interim injunctions restraining the bank from making payment and restraining respondent No. 1 from receiving payment. The trial judge (Sabyasachi Mukherji, J.) refused the interim application with an order recorded as: "no order on this application. Interim order vacated. Stay of operation of this order for a week." The appellant appealed against that interlocutory order.

Legal Issues Presented

Whether, on the facts and construction of the guarantee, the guarantee had become enforceable and whether the bank could make payment in terms of the guarantee (i.e., whether respondent No. 1 was entitled to enforce the guarantee).
Whether there was consideration for the guarantee such that the guarantee was enforceable under the Indian Contract Act.
Whether refusal to grant an interim injunction at this stage effectively amounted to dismissal of the suit or rendered the suit futile (i.e., whether an interlocutory injunction should have been granted to prevent the guarantee being invoked).

Arguments of the Parties

Appellant's Arguments (Mr. Ginwalla)

The guarantee can be enforced only if there has been a default by the contractor in repayment of the advance; the respondent's purported cancellation of the contract was wrongful and illegal, and therefore the guarantee is not properly enforceable.
There is no consideration for the guarantee; reliance was placed on section 2(b) and section 127 of the Indian Contract Act. The guarantee itself indicates no request from respondent No. 1 (the promisee), and the request purportedly came only from the appellant.
Refusal to pass any interim injunction effectively amounts to dismissal or renders the suit fructuous because, once the bank pays under the guarantee, there will be nothing left to adjudicate in the suit.

Respondent No. 1's Arguments

The trial judge's refusal to grant injunction was justified, principally because clause 3 of the guarantee makes the purchaser's decision as to default binding on the bank; the bank must pay on demand without dispute.
Reliance was placed on prior judicial decisions to show that where a guarantee contains such a clause, injunction is not appropriate. The respondent cited (a) a division bench decision in Minerals and Metals Trading Corporation of India Ltd. v. Suraj Balaram Sethi and Anr., and (b) the Court of Appeal decision Edward Owen Engineering Ltd. v. Barclays Bank International Ltd. (1977) 3 WLR 764. It was argued that these authorities support refusal of an injunction.
On the consideration point, it was argued the appellant had not pleaded this contention in the plaint or in proceedings below and therefore should not be permitted to raise it on appeal; in any event, there was sufficient consideration for the guarantee.
Finally, the respondent contended that the mere likelihood that the suit may be defeated is not a sufficient ground for an interim injunction and that the appellant, if aggrieved by the bank's payment, can take appropriate steps against the bank later.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Minerals and Metals Trading Corporation of India Ltd. v. Suraj Balaram Sethi and Anr. (reported in 74 CWN 991 / as cited in the opinion)	Authority that where a guarantee contains a clause making the purchaser's decision binding on the guarantor, an injunction to restrain payment is not appropriately granted.	The court regarded this division bench decision as clearly supporting the proposition that if the guarantee contains a clause like clause 3, then an injunction is not made out; it was followed to refuse interference with the trial judge's order.
Edward Owen Engineering Ltd. v. Barclays Bank International Ltd. and Anr. (1977) 3 WLR 764	Support for the view that an injunction restraining payment under a guarantee containing a clause compelling payment on purchaser's decision should not be granted.	The court observed that this Court of Appeal decision appears to lend support to the view that no order of injunction should be passed and relied on it alongside the division bench authority.
State Bank of India v. The Economic Trading Co. S.A.A. and Ors. (AIR 1975 Cal 145)	Addressed procedural question whether a subsequent order was justified where an earlier injunction (not appealed) remained in force; raised in submissions.	The court held this decision was not of material assistance to the present case because the primary question in that decision differed (it involved an earlier injunction in force and procedural consequences thereof).

Court's Reasoning and Analysis

The court focused on the specific wording of clause 3 of the guarantee, which provided that the purchaser's decision as to whether the contractor had defaulted in repayment shall be binding on the bank and that the bank shall not be entitled to raise any dispute but shall pay forthwith on demand without objection or demur. Because of this clause, the court reasoned that a proper prima facie case for an injunction restraining payment was not established.

The court examined the precedents relied upon by the parties. It treated the division bench decision in the Minerals and Metals case as directly supporting the proposition that where a guarantee contains such an unequivocal clause, an injunction is ordinarily inappropriate. The court found the Edward Owen decision to be consistent with that view. The State Bank decision referred to by the appellant was considered distinguishable because it turned on whether an earlier injunction order (which remained in force and had not been appealed) changed the analysis.

On the contention that there was no consideration for the guarantee, the court declined to permit the appellant to raise that argument at the interlocutory stage on appeal because the appellant had not pleaded that case in the plaint or in the interlocutory petition below, nor had it been raised in correspondence. The court therefore declined to entertain the consideration argument at this stage.

The court also emphasized the established principle that the mere possibility that a suit might be defeated if an injunction is not granted is not, by itself, a sufficient ground to grant an interim injunction. The appeal concerned an interlocutory order, and the court concluded that the trial judge had properly exercised his discretion in refusing injunctive relief on the facts before him.

Holding and Implications

Core Ruling: APPEAL DISMISSED.

Direct consequences and orders given by the court:

The appeal fails and is dismissed; interim orders, if any, are vacated and costs were made costs in the suit.
The court refused the appellant's prayer for a certificate under Article 133 of the Constitution, concluding no substantial question of law of general importance for the Supreme Court arose.
Operation of the dismissal is stayed for three weeks; during that period interim order(s) will continue on the appellant's statement that the guarantee bond is alive and on the appellant's undertaking to keep it alive for the three-week period.

Broader implications: The court applied existing authority to decline interlocutory relief where a bank guarantee expressly binds the bank to pay on the purchaser's decision; the opinion does not purport to set a new precedent beyond applying cited authorities and distinguishing other decisions on their facts.

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Bird And Co v. Tripura Jute Mills

A.N.Sen, J.:-

(1) This appeal arises out of an order passed by sabyasachi mukherji, j. On the 10th of march 1977 in an interlocutory proceeding in the suit. The plaintiff - appellant entered into a contract with defendant respondent no. 1 for supplying various articles, the respondent no. 1 agreed to make advance payment to the appellant in respect to the supplies to be made under the contract and a bank guarantee was executed for securing the advances to be made by the respondent no. 1 to the appellant. The chartered bank gave the guarantee and on the 28th of april 1975 an agreement of guarantee befwesn the respondent no. 1 and the chartered bank, respondent no. 2 was duly executed. The said guarantee bond contains the following provisions:

"2. The bank undertakes to indemnify the purchaser and keep the purcheser 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 ail such losses, damages, cost's 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 reasons 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 thirty eight 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.

4. This guarantee shall come into force immediately with effect from the date of payment of the said advance sum of rs. 10,38,440/ - (rupees ten lakhs thirty - eight thousand four hundred and forty only) by the purchaser to the contractor and shall remain valid up to 24th april, 1976 and shall not be revoked by the bank at any time during its currency without the previous consent in writing of the purchaser;"

(2) The respondent no. 1 had duly paid to the appellant the said sum of rs. 10,38,440/ - as and by way of advance against supplies to be made. On the 12th april 1976 the respondent no. 1 rescinded the said contract and thereafter on the 16th april 1976 respondent no. 1 called upon the bank, the respondent no. 2 to pay to the respondent no. 1 the said sum of rs. 10,38,440/ - in terms of the said guarantee. The appellant filed this suit on the 27th september 1976 and the reliefs asked for in the suit are -

(a) a decree directing the defendant no. 1 to deliver up the letter of the guarantee undertaking dated 28th april, 1975, so that the same may be cancelled and or discharged. (b) declaration that the defendant no. 1 is not entitled to make any claim for or to receive any money under the bank guarantee and or undetaking dated 28th april 1975 ; (c) perpetual injunction restraining the defendant no. 1 from claiming or receiving or realising and restraining the defendant no. 1 from making any payment to defedant no. 1 in respect of or under or in relation to the said letter of guarantee /undertaking dated 28th april 1975. After the institution of the suit the appellant made an application to this court in the said suit for an interim order of injunction restraining the bank from making any payment to the respondent no. 1 under or in respect of the guarantee and for an injunction restraining the respodent no. 1 and its servants and agents from receiving or realising or claiming any amount under or in respect of the said guarantee. On the said application the learned trial judge passed an order which is set out at page 210 of the paper book and which is in the following terms no order on this application. Interim order vacated. Stay of operation of this order for a week. "

Aggrieved by the said order of the learned trial judge refusing to make any order of injunction, this appeal has been preferred by the plaintiff in the suit.

(3) Mr. Ginwalla, learned counsel appearing on behalf of the appellant has raised three principal contentions before us, the first and main contention urged by mr. Ginwalla is that in the facts and circumstances of the case the guarantee bond has not become enforceable and the bank cannot make any payment in terms of the said guarantee and the respondent no. 1 is not entitled to enforce the said guarantee or to receive any payment in terms thereof. The second contention urged by mr. Ginwalla is that there is no consideration for the said guarantee and the said guarantee is therefore unenforceable. The third contention raised by mr. Ginwalla is that refusal to. Pass any interim order of injunction virtually amounted to dismissal of the suit before the same had been properly tried.

(4) In support of his first contention mr. Ginwalla has urged that on a true construction of the guarantee the guarantee can only be enforced if there has been any default on the part of the appellant in repayment of the advance made in terms of the provisions contained in the said guarantee. Mr. Ginwalla has argued that in the instant case the respondent no. 1 has wrongfully and illegally purported to cancel the contract and the said cancellation in the facts and circumstances of the case is cleanly illegal and in support of this submission mr. Ginwalla has referred to various documents including the correspondence which passed between the parties.

(5) In support of the second contention that there is no consideration for the said guarantee, mr. Ginwalla has referred to sec. 2 (b) of the indian contract act and also to section 127 of the said act. Mr. Ginwalla has drawn our attention to the agreement of guarantee and he had pointed out that in the instant case the gurantee itself clearly indicates that there has been no request from the rsepondent no. 1 which is the promisee and the request has come only from the apellant. The last contention of mr. Ginwalla has been that refusal tot make any order of injunction at this stage will render the suit in fructuous, as once the payment is made in terms of this gurantee, there will be nothing left in this suit.

(6) On behalf of the respondent no. 1 it has been submitted that the order of the learned trial judge is clearly justified in the facts and circumstances of this case and particularly in view of the provision contained in clause 3 of the guarantee. It is argued that in view of the said clause it cannot be said that any proper case has been made out for any order of injuncticn and in support of this submission reliance has been placed on the decision of the division bench of this court in the case of the mineral and metals trading corporation of india ltd. V. Suraj balaram, sethi and anr. Reported in 7. 4 cwn 981 and also to the decision of the court of appeals in england in the case of edward owen engineering ltd. V. Barclays bank international ltd. And anr. (1977) 3 wlr 764. In this connection it may be noted that. Mr. Ginwalla had referred to the decision in the case of state bank of india v. The economic trading co. S. A. A. And ors. Reported in air 1975 cal 145. It may also be noted that in this decision of the division bench the earlier decision in 74 cwn has also been considered.

(7) With regard to the second contention of mr. Ginwalla it has been submitted that the appellant is not entitled to raise this question that the contract of guarantee is without consideration at this stage in the appeal as no such case has been made either in the plaint or in the petition in the lower court or before the learned trial judge and there is no such ground taken in the memorandum of appeal. It has been submitted that in any event there has been sufficient consideration for the guarantee. With regard to the last submission of mr. Ginwalla it has been argued that the mere fact that the suit is likely to be defeated is indeed not of a matter of sufficient consideration for passing any interim order, if the facts and circumstances of the case do not warrant the passing of any interim order. It has been further submitted that the appellant, if the appellant is aggrieved by the payment by the bank, can always take appropriate steps against the bank.

(8) 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 judgs 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 is the case of the minerals and metals trading corporation of india ltd. V. Suraj balaram sethi and anr. , 74 cwn 991 clearly ends 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. The economic trading co. S. A. A. And ors. Reported in air 1975 cal. 145 is not of any material assistance, as the question primarily involved in the said decision was whether in view of an earlier order of 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. Berclays bank international ltd. And ors. (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 74 cwn 991 we must, therefore, hold that this is not a fit case where an order of injunction should be passed.

(9) So far as the second contention of mr. Ginwalla is concerned, we are of the opinion, that in the absence of any such case being made out in the plaint or in the petition mr. Ginwalla should not be permitted at this stage to make out that case on behalf of the appellant' we may also note that no such case has been made out at any stage by the appellant even in its correspondence. We are also not impressed with this argument of mr. Ginwalla.

(10) In considering whether an order of injunction should be passed, it is indeed not a very material consideration that the suit may be defeated, if the order of injunction asked for is not made by this court. The mere fact that a suit is likely to be defeated if no order of injunction is passed, does not by itself constitute any sufficient ground for passing an order of injunction. We are not concerned in this appeal as to what will ultimately happen in the suit. In this appeal this court is concerned with an order passed by the 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, no grounds have been made out for any interference with the order passed by the learned trial judge.

(11) This appeal, therefore, fails and is hereby dismissed. Interim orders, if any, are all vacated. Costs will be costs in the suit.

(12) Mr. Ginwalla made oral application for a certificate under article 133. Of the constitution. The said prayer of mr. Ginwalla is refused, as this court is of the opinion that no substantial question of law of general importance requiring determination by the supreme court arises for determination in this case.

(13) Operation of the order will. However, remain stayed for a period of three weeks and during the said period interim order will continue on the statement of mr. Ginwalla that the guarantee bond alive and upon his undertaking to kept the same alive for the said period.

Bird And Co v. Tripura Jute Mills

Judgment Summary — A. N. Sen, J. (Interlocutory Appeal)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments (Mr. Ginwalla)

Respondent No. 1's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Bird And Co v. Tripura Jute Mills

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