M. Jagannadha Rao, C.J. - (1.) This is an appeal by the plaintiff in Suit No. 2195/92 against the order dated 7.8.1996 in IA No. 8932/92 vacating the interim injunction dated 15.6.92. The IA was for temporary injunction restraining the respondent from invoking two Bank guarantees No. G. 76/1337 and G. 78/448 dated 6.12.82 and 9.4.84 respectively. The suit was one Filed by the appellant under Section 20 of the Indian Arbitration Act, 1940.
(2.) The 1st respondent, namely, the Cement Corporation of India invited tenders regarding supply, supervision of erection and commissioning of two numbers of Cement Mills at Tandur, State of Andhra Pradesh. On 9.11.82, a Letter of Intent was issued in favour of the appellant in respect of two cement plants. Though a formal contract was to be executed between partics, none was executed as appellant failed to give technical details which were to be incorporated in the contract. Clause 2.0.0 of the Letter of Intent contemplated the appellant supplying material and supervising the erection of the plant by the 1st respondent. According to the appellant, both the Mills went into operation in May, 1986 and were running satisfactorily, but the 1st respondent unjustly invoked the Bank guarantees on 8.4.92 and reminded the Bank on 21.4.92 and 26.5.92 staling that appellant had failed to fulfil its contractual obligations. The present suit under Section 20 of the Arbitration Act has been filed in 1992 and temporary injunction was granted on 15.6.92 restraining the 1st respondent from encashing the Bank guarantees. Under the impugned order dated 7.8.96, injunction was vacated.
(3.) The learned Single Judge held that the Letter of Intent no doubt stipulated that the first performance test was to be offered by the 1st respondent for a period of 4 days at 20 hours continuous operation per day for the whole section and the 'final performance test' was required to be completed within 4 months of the first performance test, which in its turn was to start immediately after full load commissioning of the cement grinding section. The work was to be completed by the appellant within 30 months of the effective date of the contract. The learned Judge noticed that the case of the appellant was that with the supply of machinery and parts by the appellant, 1st respondent erected the two Mills, both Mills went into operation in May, 1986 and since then, they were running satisfactorily. As per the law on the subject, the Bank guarantees could be invoked unless there was fraud of such magnitude as would Vitiate the underlying contract and there was likelihood of irretrievable injury to the person concerned. (Hindustan Steel Workers Construction Ltd. vs. G.S. Atwal & Co.(Eng)(P) Ltd 1995 (6) SCC 76; Larsen & Toubro Ltd. vs. Maharashtra State Elec. Board 1995 (6) SCC 68. After referring to the terms of the Bank guarantee, learned Judge observed that: "the Bank had conditionally and irrevocable agreed" to pay on demand, the amount specified in the Bank guaranteend that the 1st defendant shall be the "sole Judge" to decide whether the appellant had committed breach and also as to the extent of loss or damages. The learned Single Judge therefore vacated the injunction.;