Sandeep Kumar Aggarwal vs Archana Airways Ltd. And Ors.
1999 Latest Caselaw 608 Del

JUDGMENT

Vikramajit Sen, J.

1. This application was filed alongwith the Suit and seeks an order restraining defendants 1 and 2 from invoking/encasing the Bank Guarantee dated 26.3.1996 issued by defendant No. 3 in favour of defendant No. 1 and for restraining defendant No. 3 from realising the amount against it. The suit is for recovery of Rs. 6,79,500/- (Rs. six lakhs seventhly-nine thousand five hundred only) and for mandatory and permanent injunction.

2. The facts relevant for disposing of the application are that defendant No. 1 agreed to firstly train the plaintiff, and thereafter employ him on their rolls as a co-pilot of the defendant (Archana Airways Ltd.). The plaintiff had paid Rs. 2 lakhs to the said defendants being the cost of the training which the said defendant undertook to impart to the plaintiff. Apart from this sum the defendants had also demanded that the plaintiff should furnish a Bank Guarantee for Rs. 3,00,000/- (Rs. three lakhs only) so as to ensure/ secure that the plaintiff would serve the said defendants for a period of five years (later on increased to ten years).

3. The plaintiff's case is that due to the default on the part of these defendants the training could not be completed whereas the plaintiff has alleged that the training was deliberately not completed within the stipulated time. The plaintiff has denied that he was ever informed to report to the Airport office on 28.4.1998 for undertaking a short refresher test, as contemplated by the agreement subsisting between the parties. It was his contention that the Bank Guarantee was to come into force only for the date of employment and that since the employment did not commence, there was no justification for its invocation.

4. The restatement of the law pertaining to the invocation of the Bank Guarantees is to be found in the case of U.P. State Sugar Corporation v. Sumac International Ltd., , a relevant extract of which is reproduced as under :

The law relating to invocation of such Bank Guarantees is by now well settled. When in the course of commercial dealings an unconditional Bank Guarantee is given or accepted, the beneficiary is entitled to realize such a Bank Guarantee in terms thereof irrespective of any pending disputes. The Bank giving such a Guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer. The very purpose of giving such a Bank Guarantee would otherwise be defeated. The Courts should, therefore, be slow in granting an injunction to restrain the realization of such a Bank guarantee. The Courts have carved out only two exceptions. A fraud in connection with such a Bank Guarantee would vitiate the very foundation of such a Bank Guarantee. Hence if there is such a fraud of which the beneficiary seeks to take ad vantage, he can be restrained from doing so. The second exception relates to cases where allowing the encashment of an unconditional Bank Guarantee would result in irretrievable harm or injustice to one of the parties concerned. Since in most cases payment of money under such a Bank Guarantee would adversely affect the bank and its customer at whose instance the Guarantee is given, the harm or injustice contemplated under this head must be of such an exceptional and irretrievable nature as would override the terms of the Guarantee and the adverse effect of such an injunction on commercial dealings in the country. The two grounds are not necessarily connected, though both may coexist in some cases.

5. In the present case, what falls to be determined is (i) whether the Bank Guarantee was unconditional, (ii) whether there exists any fraud in connection with the Bank Guarantee which would vitiate the Very foundation, which the beneficiary is seeking to take advantage of, and (iii) whether the encashment of the Guarantee would result in irretrievable harm or injustice to the plaintiff.

6. The Bank Guarantee is reproduced for easy reference :

The deed of Guarantee made on this 26th March, 1996 by Punjab National Bank, Bisauli (Budaun) with its Head Office at New Delhi (hereinafter referred to as "the Bank") in favour of M/s. Archana Airways Ltd., having its office at 41-A, Friends Colony East, New Delhi-110065 (hereinafter referred to as "Archana").

The terms "the Bank" and "Archana" shall unless excluded by or repugnant to the context, include their successors in interest, representatives and assignees respectively.

Whereas, by an Agreement dated 22.3.1996 entered into between Archana and Sandeep Kumar, Archana has agreed to provide training to Mr/Mrs. Sandeep Kumar for acting as co-pilot on the Company's aircraft.

Whereas, under the Agreement, the applicant has to furnish an irrevocable Bank Guarantee from a Bank in favour of Archana in the amount of Rs. 3,00,000/-(Rupees three lakhs only) to guarantee due performance by the applicant his/her obligations under the terms and conditions of the Agreement.

And whereas, at the request of the applicant, the Bank has agreed to stand guarantor for the applicant for the said sum of Rs. 3,00,000/- (Rupees three lakhs only) the terms and conditions contained hereinbelow.

Now, therefore, this deed witnesses as follows :

1. This Agreement will come into force with effect from the date of employment for the applicant.

2. The Applicant undertakes that he shall serve the company for a period of 5 years from the date of employment.

3. In the event of the applicant failing to serve the company as stipulated and mentioned herein before or failing to comply with any terms and conditions of employment under this Agreement, the Company shall have the mitigated right to encash the Bank Guarantee.

4. The Company's right as above shall occur in the following particular circumstances, besides the circumstances generally prescribed in Clause (3) hereinabove :

(i) If the applicant's absence from duty unauthorisedly or leaves the employment before serving the full period of 5 years.

(iii) If the applicant resigns during his stipulated employment of 5 years or he otherwise violates or terminates the fulfillment of his obligation in respect of the employment for the specified period without the consent in writing of the company, which the company may at his sole discretion give at any time.

5. We, the Bank, do hereby unconditionally and irrevocably undertake to pay the amount due and payable under this Guarantee without any demur and - merely on demand by Archana stating that the amount claimed is due by way of loss or damage caused in or suffered by Archana by reason for any breach by the applicant of any of the terms and conditions contained in the Agreement. We, the Bank, hereby agree that our obligation here under shall be absolute and unequivocal and we undertake to pay forthwith all the money so demanded without demur notwithstanding any dispute or disputes raised by the applicant. Any such demand made on the Bank shall be conclusive as regards the amount due and payable by the Bank under this guarantee. The decision of Archana as to the amount so due shall be final and binding on the Bank. However, our liability under this guarantee is restricted to an amount not exceeding Rs. 3,00,000/- (Rupees three lakhs only).

6. We, the Bank, further agree that the Guarantee herein contained shall remain in force and effect during the period that would be taken for the performance of the Agreement and that it shall be continued to be enforceable till all the dues of Archana under or by virtue of Agreement have been fully paid and its claims satisfied or discharged or till Archana certifies that the terms and conditions of the Agreement have been fully carried out by the applicant and accordingly discharge the guarantee.

7. We, the Bank, further agree that Archana shall have full liberty without our consent and without affecting in any manner our obligations hereunder, to vary any of the terms and conditions relating to the Agreement and to forbear or enforce any of the terms and conditions relating to the Agreement or furnishing of this Guarantee and we shall not be relieved from our liability by reason of any such variation, forbearance act or omission on the part of Archana or any indulgence by Archana to the applicant or by any such matter or thing whatsoever which under the law relating to the sureties would but for this provision, have the effect of so relieving us.

8. We, the Bank, undertake that this guarantee will not be discharged due to any change in the constitution of the Bank or of the applicant.

9. We, the Bank, lastly undertake not to revoke this Guarantee during its currency except with the previous consent of Archana in writing.

This guarantee is valid in respect of agreement for employment made between the Archana Airways Ltd. and Sandeep Kumar, unless a demand or claim under this Guarantee is made on the Bank in writing on or before 25th March, 2001. The Bank shall be discharged from all liabilities under this Guarantee thereafter.

Yours faithfully,

for Punjab National Bank

Bisauli (Budaun) U.P.

Date : 26.3.1996

Place : Bisauli (Budaun) UP

Sd/- Illegible

Rubber stamp

Punjab National Bank

Authorized Signatories

Notwithstanding anything contained hereinbefore the liability of Sh. Sandeep Kumar under this Guarantee is restricted to Rs. 3,00,000/- (Rupees three lakhs only). Our Guarantee shall remain in force until 25th March, 2001. Unless an action to enforce a claim under this Guarantee is made against the Bank on or before the date of expiry i.e. 25th March, 2001, all the rights of the beneficiary under this Guarantee shall be forfeited and the Bank shall be released and discharged from all liabilities thereunder :

Yours faithfully,

Date

Place :

Sd/- Illegible

Rubber stamp.

6.1 A perusal of the terms of the Bank Guarantee discloses that it was directly dependent on the Agreement signed between the parties and that the said "Agreement" (sic) (obviously the Bank guarantee) would come into effect from the date of the employment of the applicant. Thereafter, a number of events had been spelt out in the Bank Guarantee on the occurrence of which the Company (Archna Airways Ltd.) would have mitigated (and not unmitigated) right to encash the Bank Guarantee. Thereafter, although the usual parlance in Bank Guarantee has been employed i.e. "without any demur and merely on the demand", the liability would be occasioned on any breach "by the applicant of any of the terms and conditions contained in the Agreement". What would be, then, the fair construction of this Bank Guarantee ? To my mind it precludes a demur or objection raised by the plaintiff in the context of the amount/quantum claimed by way of loss or damage caused to defendant No. 1 whereas the quantum of damages claimed cannot be open to question or attack, it would necessarily have to be considered whether any breach of the agreement has been committed by the applicant. It appears that defendant No. 1 had by its letter dated 26.5.1998 invoked the Bank Guarantee and sought the payment of Rs. 3 lakhs without even a perfunctory statement that the applicant had breached the terms and conditions contained in the Agreement. However, a. definitive finding on the aspect of whether the Bank Guarantee was conditional or unconditional and/or whether its invocation was correctly made, need not be returned for the reasons given by me hereafter.

7. In order to substantiate his contention that the plaintiff was not an 'employee' of defendant No. 2, the learned Counsel for the plaintiff has relied on E.S.I. Corporation v Tata Engineering & Co., Locomotive Co. Ltd. and Anr., wherein it was held as under :

The heart of the matter in apprenticeship is, therefore, the dominant object and intent to impart on the part of the employer and to accept on the part of the other person learning under certain agreed terms. That certain payment is made during the apprenticeship, by whatever name called, and that apprentice has to be under certain rules of discipline, does not convert the apprentice to a regular employee under the employer. Such a person remains a learner and is not an employee. An examination of the provisions of the entire agreement leads us to the conclusion that the principal object with which the parties enter into an agreement of apprenticeship was offering by the employer an opportunity to learn the trade or craft and the other person to acquire such theoretical or practical knowledge that may be obtained in the course of the training. This is the primary feature that is obvious in the agreement.

Now coming to the legislative history of our country on the subject, it is interesting to note that more than hundred years back we had the Apprentices Act, 1850 and its preamble says, "For better enabling children, and especially orphans and poor children brought up by public charity, to learn trades, crafts and employments, by which, when they come to full age, they may gain a livelihood......" Learning of craft or trade was the essence of the said legislation. This Act was repealed by Section 38 of the Apprentices Act, 1961. The object of 1961 Act is to provide for the regulation and control of training of apprentices in trades and for matters connected therewith. By the definition clause under this Act, namely, Section 2(a) "apprentice" means a person who is undergoing apprenticeship training in a designated trade in pursuance of a contract of apprenticeship". It is, therefore, inherent in the word 'apprentice' that there is no element of employment as such in a trade or industry but only on adequate well-guarded provision for training to enable the trainee after completion of his course to be suitably absorbed in earning employment as a regular worker. The fact that a trainee may have been absorbed in the company where he is undergoing the training, is not relevant for the purpose of comprehending the content of the term.

7.2. Applying this-ratio to the case in hand it would appear, prima facie, that the plaintiff was not an employee of defendant No. 2.

8. The engagement between the parties was firstly for the imparting of training and thereafter for the employment of the plaintiff by defendant No. 1. In its letter dated March 22, 1996 defendant No. 1 had taken pains to clarify in the first two paragraphs that the plaintiff would be considered for employment only "upon satisfactory completion of training"; and that "during the period of training and until the GCA endorsement as required, you (plaintiff) shall not be regular employee of the company and shall not be paid any salary". It is not in dispute that the training was not completed. Which party was to blame for this would be determined on the final stage of the suit. Clause 1 of the Bank Guarantee itself states, as has already been mentioned above, that the Agreement would come into force with effect from the date of employment for the plaintiff. Even in Clause 3, defendant No. 1 have the mitigated right to encash the Bank Guarantee and this is understandable because of the various reciprocal obligations. Accordingly, the justification or cause of action for invoking or encashing the Bank Guarantee had not risen at all. Defendant No. 1 must be held to be well aware of this situation, and for this reason perhaps did not mention in its letter dated 26.5.1998 that the plaintiff had breached the "Agreement" between them. Defendant's action in seeking to recover Rs. 3 lakhs would, therefore, fall within the category of fraud as envisaged in the various pronouncements of the Hon'ble Supreme Court. It cannot be ignored that a sum of Rs. 2 lakhs was paid by the plaintiff towards the expenses/fees for the trainee. Prima facie, a fraud appears to have been committed by defendant No. 2 in invoking the Bank Guarantee, which is relatable to its foundations.

9. Defendant No. 2 had relied on the case of P.D. Alkaram Pvt. Ltd. v. Canara Bank, , D.K. Jain, J., after a succinct review of the plethora of precedents on the subject of restraint on the encashment of Bank Guarantees, on an appreciation of the effects of the case granted the injunction prayed for by the plaintiff. This decision does not advance the case of the defendants.

10. For these reasons, I allow this application of the plaintiff and restrain defendants 1 and 2 from invoking/encasing the Bank Guarantee dated 26.3.1996 issued by defendant No. 3 in favour of defendant No. 1 and restrain defendant No. 3 from releasing the amount against the said Bank Guarantee in favour of defendant No. 1.

11. The parties shall bear their respective costs.