PARIPOORNAN - (1.) LEAVE granted.
(2.) THE appellant, petitioner in arbitration petition Lodg. No. 240/94 in the High Court of Judicature at Bombay, initiated under Section 41 of the Arbitration Act, has filed this appeal by special leave against the order passed by N.D. Vyas, J. dated 20-10-1994. THE appellant's prayer for injunction against the first respondent (Maharashtra State Electricity Board) from invoking or claiming or demanding or releasing any amount whatsoever under certain bank guarantees given by the respondent Nos. 2 to 5 was dismissed by the aforesaid order by the learned Judge. Respondent Nos.1 to 5 in the arbitration petition Lodg. No. 240/94 as also in this appeal are - (1) Maharashtra State Electricity Board, Bombay; (2) Standard Chartered Bank, branch Bombay; (3) Grindlays Bank p.l.c., branch Bombay; (4) City Bank, N.A. branch Bombay; and (5) Bank of Baroda, branch Bombay. The first respondent invited tenders for supply and commission of Coal Handling Plant. The appellant's tender, which was accepted, culminated in a contract, executed between the parties, dated 9-3-1989. The value of the contract was Rs. 61,11,200.00. The appellant furnished the following five Bank Guarantees; JUDGEMENT_68_6_1995Html1.htm The completion of the Plant seems to have been delayed. The parties are blaming each other for the delay. After taking the trial and performance test, the Plant was taken over by the first respondent on 10-6-1994. On the same day a take over certificate was also issued. It is seen that earlier on 29-3-1994, the appellant lodged its claim. The first respondent denied the claims so made. They did not make any counter-claim then. On 4-6-1994, the appellant invoked the arbitration clause as per the contract. A meeting of the Arbitrators took place on 14-9-1994. The Arbitrators gave certain directions. In pursuance thereto the appellant filed its claim on 30-9-1994. The Arbitrators gave time to the first respondent to file their counter-claim on or before 30-11-1994. In the meanwhile on 1-10-1994 the first respondent invoked all the Bank Guarantees except Guarantee No.2 mentioned hereinabove (Performance Guarantee). The Court passed an order directing the status quo to be maintained on 17-10-1994. Appellant filed arbitration petition Lodg. No. 240/94 and contended that the Bank Guarantees have been fraudulently and dishonestly invoked. Regarding Guarantees in respect of advance and liquidated damages, it was further alleged that they were invoked after the date of expiry of the said Guarantees. Vyas, J. rejected the above pleas and declined to grant the interim relief as prayed for by the appellant. As agreed to by counsel on both sides, the interim order was made the order in the main petition itself. Arbitration Petition Lodg. No. 240/94 was dismissed. Hence this appeal by special leave. Name of the BankNo. of the Bank GuaranteeNature of the Bank Guarantee Amount of the Bank Guarantee inLast extended date Rs. 1. Standard Chartered Bank, Respondent No.2529/88/153Security against advance payment5,50,30,00031-5-94 2. ANZ Grindlays Bank PLC, Respondent No.31101/88/384/GPerformance6,17,28,00031-3-94 3. Citi Bank, N.A., Respondent No. 426247Partial releaseof retention money2,72,39,85019-3-94 Bank of Baroda, Respondent No.573/309Security against liquidated damage6,13,40,97826-9-94
(3.) STANDARD Chartered Bank, Respondent No.2529/93/380Partial release of retention money1,12,00,00031-12-94 4. We heard appellant's Counsel Mr. B.M. Naik, Senior Advocate, and Mr. Harish N. Salve, Senior Advocate, who appeared for the respondent. At the outset we should make it clear that the Bank Guarantee relating to performance, item No.2 mentioned in the preceding paragraph, was not invoked and is not covered by the subject matte of this proceeding. 5. Before we adjudicate the rival pleas urged before us by Counsel for the parties, it will be useful to bear in mind the salient principles to be borne in mind by the Court in the matter of grant of injunction against the enforcement of a Bank Guarantee/irrevocable Letter of Credit. After survey of the earlier decisions of this Court in United Commercial Bank v. Bank of India (1981) 2 SCC 766 : (AIR 1981 SC 1426), U.P. Co-operative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd., (1988) 1 SCC 174, General Electric Technical Services Company Inc. v. Punj Sons (P) Ltd., (1991) 4 SCC 230 : (1991 AIR SCW 2136) and the decision of the Court of appeal in England in Elian and Rabbath v. Matsas and Matsas, 1966 (2) Lloyd's Report 495 and a few American decisions, this Court in Svenska Handelsbanken v. M/s. Indian Charge Chrome (1994) 1 SCC 502 : (1993 AIR ACW 4002) laid down the law thus :- "... in case of confirmed bank guarantees/irrevocable letters of credit, it cannot be interfered with unless there is fraud and irretrievable injustice involved in the case and fraud has to be an established fraud...." (p.523 of SCC) : (at p.4024 of AIR) "....irretrievable injustice which was made the basis for grant of injunction really was on the ground that the guarantee was not encashable on its terms...." (p.524 of SCC) : (at p.4025 of AIR). "....there should be prima facie case of fraud and special equities in the form of preventing irretrievable injustice between the parties.Mere irretrievable injustice without prima facie case of established fraud is of no consequence in restraining the encashment of bank guarantee". (pp.526-527 of SCC) : (at p.4027 of AIR). In the order appealed against the learned Judge has referred to the decisions aforesaid and has held thus:- "... Only in the event of fraud or irretrievable injustice, the Court would be entitled to interfere in a transaction involving a bank guarantee and under no other circumstances. The petitioners have failed on both these counts". (Paper Book - Vol.I.p.7) ;