Madan Stores (P) Ltd. vs Regional Manager, Indian Petro ...
2000 Latest Caselaw 1035 Del

ORDER

K.S. Gupta, J.

1. In the suit claiming a number of reliefs, the plaintiff filed I.A.8210/2000 under Order 39 Rules 1 & 2 read with section 151 CPC seeking issue of ad interim injunction restraining the defendants from invoking three bank guarantees being Nos. 43/6 dated 29th March 2000, 42/13 dated 16th March 1999 and 42/04 dated 31st August 1998. By the order dated 17th August 2000 summons in the suit and notice of the said I.A. were directed to be issued to defendants returnable on 25th September 2000. Dissatisfied with the order of issuing notice only of said I.A., the plaintiff filed FAO(OS) 240/2000 and therein show cause notice was ordered to be issued vide order dated 22nd August 2000 to the respondent-defendants returnable on 6th September 2000 and in the meantime respondent No.1/defendant No.1 was restrained from invoking the said bank guarantees by a Division Bench. On defendants 1 to 4's counsel making statement on 6th September 2000 that defendants have not even invoked the bank guarantees, the appeal was dismissed observing that no case for interference was made out at that stage. Thereafter, I.A.9210/2000 under section 151 CPC was filed by the plaintiff alleging that after getting the appeal dismissed by the order dated 6th September 2000 the defendants have written a letter dated 6th September 2000 to defendant No.5 bank invoking the said bank guarantees. It was prayed that date of hearing in I.A.8210/2000 be preponed and said defendants be restrained from invoking the bank guarantees in question. When above I.A.9210/2000 came up for hearing on 12th September 2000 the counsel for said defendants made statement that he did not wish to file reply to I.A.8210/2000 and same may be heard on merits.

2. By way of preliminary objection it was contended by Sh. Rajiv Nayar for defendants 1 to 4 that in terms of clause 30 of Distributorship agreement dated 13th August 1991 courts at Baroda alone have the jurisdiction to try a suit between the parties to the agreement and this court has no territorial jurisdiction to try the present suit. On the other hand, it was submitted by Sh.R.P. Kathuria for plaintiff that Indian Petro Chemicals Corporation Ltd. (for short 'IPCL') has a branch in New Delhi with head office at Baroda. No part of cause of action concerning the subject matter of suit had accrued within the jurisdiction of courts at Baroda and, therefore, said clause 30 cannot oust the jurisdiction of this court. Although Sh. Nayar asserted that part of cause of action did accrue at Baroda but in the absence of reply to the application he could not point out as to which part of cause of action had accrued at Baroda. Thus, leaving the question of territorial jurisdiction open, I propose to decide the application on the assumption that this court has jurisdiction to try the suit.

3. Submission advanced by Sh.R.P. Kathuria was - (a) that the Distributorship agreement dated 13th August 1991 entered between the plaintiff and IPCL which was for one year had elapsed by afflux of time and pursuant thereto three bank guarantees in question could not have been executed by plaintiff company; (b) that conditions for invocation as noted in three bank guarantees have not been fulfillled by IPCL and (c) that the dues shown as outstanding relate to supplies of Lenial low density polyethene and High density polyethylene which products are not covered by the three bank guarantees.

4. The plaintiff company has filed photostat copies of Distributorship agreements dated 13th August 1991, 1st October 1997 and also the letter dated 4th December 1998. Agreement dated 13th August 1991 admittedly executed between the plaintiff and IPCL contains the terms and conditions on which plaintiff was appointed as distributor of the products noted therein by IPCL. In the copy Clause 25 dealing with the duration for which this agreement was to remain in force, is blank. According to plaintiff the duration was for one year. Another agreement dated 1st October 1997 also executed between the said parties seems to contain terms and conditions identical to those mentioned in agreement dated 13th August 1991. Clause 25 of the agreement dated 1st October 1997 notices that it was for a period upto 30th September 1998. Said letter dated 4th December 1998 sent by IPCL to plaintiff company notices that IPCL had extended the agreement dated 1st October 1997 for a further period of one year upto 30th September 1999 in terms of clause 25 on the same terms and conditions. For deciding the controversy on hand reference to Para No.5 of the plaint is necessary. It is alleged in that para that the parties entered into a distributorship agreement on 13th August 1991 and this agreement was renewed every year; that last renewal was made on 1st October 1997 which has further been extended uptil October 2000. Averments made in subsequent paragraphs of the plaint would reveal that supplies of products by IPCL to plaintiff company had been made on the terms and conditions contained in said agreement dated 13th August 1991. In the backdrop of these facts it is now not open to contend that the bank guarantees in question could not have been executed with reference to the said agreement and on that score they are unenforceable.

5. Coming to the argument at (b) above, a copy of bank guarantee No.43/6 dated 29th March 2000 in the sum of Rs.25 lakhs is placed at pages 115 to 117 on Part III file. It is not in dispute that contents of remaining two bank guarantees No.42/13 dated 16th March 1999 and 42/04 dated 31st August 1998 both in the sum of Rs.50 lakh each are similar to that of said bank guarantee No.43/6. Omitting the immaterial portion, the contents of bank guarantee No.43/6 which are material, are reproduced below:-

"1. That in consideration of the value of the stocks of the said products held by the distributor and in consideration of any contigent sales tax liability/ any other statutory levies on the quantum of sales of the company's products by the distributor including arrears of sales tax/statutory levies due to the sales tax department/statutory bodies and penalties if any that may be levied under the provisions of the Sales Tax Act/ and other Acts, the "Bank" hereby guarantee to the company that in case of failure on the part of the Distributor to pay Rs.25,00,000/- being the full value of such stocks of the said products (including interest amount on the delayed remittance if any, by the distributor towards sale of products of the company), the "Bank" shall pay to the company on the first demand the sum of Rs. 25,00,000/- together with interest @ 21% per annum for the date of such demand to the date of the payment without any demur, question, objection or reference to the distributor and notwithstanding any dispute, claim or objection of the distributor and this guarantee shall remain inforce and effective upto 28.3.2001.

2. The Bank shall not be discharged or released from the guarantee by any arrangement made between the distributor and the company with or without the consent of the Bank or by any alteration in the obligations of the parties under the agreement, or any indulgence or forbearance as to payment, performance or otherwise.

3. (A) The bank undertakes not to revoke this guarantee during its currency except with the consent of the company in writing.

(B). The bank further undertakes to enhance without demur the value of the guarantee in the event of question of any liability arising or likely to arise to the company on account of sales tax or income tax or any other statutory levies including arrears thereof in respect of the sales of the company's products made by the distributor equivalent to the amount of such liability till such time the liability is totally cleared by the distributor. After the liability is met by the distributor of the value of this guarantee may be reduced by corresponding amount.

4. All sums guaranteed herein by the bank shall be due and payable to the company immediately on demand by notice in writing sent to the bank and such information shall be conclusive as regards the amount due and payable to the company.

5. Notwithstanding anything contained hereinbefore but subjected to clause 3(B) above, the liability of the bank under this guarantee is restricted to Rs. 25,00,000/- unless a claim in writing is presented on or before 28th March 2001 for the transaction upto 28.3.2001 all the rights of the company under this guarantee shall be forfeited and the bank shall be released and discharged from all liabilities hereunder, thereafter unless the same have been previously extended at the instance of the company. Notwithstanding anything contained Rs. 25,00,000/- the bank guarantee shall be valid upto 28.3.2001 with a claim period upto 28.9.2001. We are liable to pay guaranteed amount or any part under bank guarantee only and only if you serve upon us a written claim or demand on or before 28.9.2001 for transactions upto 28.3.2001."

6. During the course of hearing Sh. Raiv Nayar handed over the copies of notice dated 7th September 2000 sent on behalf of IPCL to defendant No.5 bank and that of reply in appeal etc filed on behalf of defendants 1 to 4 / respondents 1 to 4 before the Division Bench in aforesaid FAO(OS) 240/2000.

7. Elaborating the submission it was pointed out by Sh.R.P. Kathuria that said letter dated 7th September 2000 does not fulfilll the conditions for invocation of the bank guarantees in question in as much as it is not mentioned therein as to what is the value of stocks of products supplied to plaintiff company by IPCL including interest on delayed remittances, if any, or the amount of sales tax levied or other statutory levies on the quantum of sales of IPCL products or penalty, if any as laid down in the bank guarantees and in such a situation this court would protect the interest of plaintiff company by restraining defendants 1 to 4 from collecting and defendant No.5 bank from remitting the amount of Rs. 1.25 crores of the said three bank guarantees. In support of the submission reliance was placed mainly on the decisions in Hindustan Construction Co. Ltd. Vs. State of Bihar and others, and M/s. Basic Tele Services Ltd. Vs. Union of India and another, . It is now well settled law that a bank guarantee represents an independent contract between the bank and the beneficiary and courts ought not to grant injunction against invocation of bank guarantee except in the case of fraud which should be an established fraud or where irretrievable injury is likely to be caused to the guarantor (See: U.P. Coop. Federation Ltd. Vs. Singh Consultants & Engineers (P) Ltd., ; Svenska Handelsbanken Vs. Indian Charge Chrome, (1994) 1 SCC 502; Larsen & Toubro Ltd.Vs. Maharashtra SEB, ; Hindustan Steel Workers Construction Ltd Vs. G.S. Atwal & Co. (Engineers) (P) Ltd, ; National Thermal Power Corpn.Ltd Vs. Flowmore (P) Ltd, ; State of Maharashtra Vs. National Construction Co., , Hindustan Steelworks Construction Ltd Vs. Tarapore & Co. and U.P. State Sugar Corpn. Vs. Sumac International Ltd, .

8. In Hindustan Construction Co's case (supra) after reproduction of the contents of bank guarantee furnished towards 'advance mobilisation loan' in Para No.12 of the decision on page 443, it was held in paras 13 and 14 thus:-

"13. The Bank, in the above guarantee, no doubt, has used the expression "agree unconditionally and irrevocably" to guarantee payment to the Executive Engineer on his first demand without any right of objection, but these expressions are immediately qualified by following:

"..in the event that the obligations expressed in the said clause of the above-mentioned contract have not been fulfillled by the contractor giving the right of claim to the employer for recovery of the whole or part of the advance mobilisation loan from the contractor under the contract."

14. This condition clearly refers to the original contract between HCCL and the defendants and postulates that if the obligations, expressed in the contract, are not fulfillled by HCCL giving to the defendants the right to claim recovery of the whole or part of the "advance mobilisation loan", then the Bank would pay the amount due under the guarantee to the Executive Engineer. By referring specifically to clause 9, the Bank has qualified its liability to pay the amount covered by the guarantee relating to "advance mobilisation loan" to the Executive Engineer only if the obligations under the contract were not fulfillled by HCCL or HCCL has misappropriated any portion of the "advance mobilisation loan". It is in these circumstances that the aforesaid clause would operate and the whole of the amount covered by the "mobile sation advance" would become payable on demand. The bank guaran-

tee thus could be invoked only in the circumstances referred to in clause 9 whereunder the amount would become payable only if the obligations are not fulfillled or there is misappropriation. That being so, the bank guarantee could not be said to be unconditional or unequivocal in terms so that the defendants could be said to have had an unfettered right to invoke that guarantee and demand immediate payment thereof from the bank. This aspect of the matter was wholly ignored by the High Court and it unnecessarily interfered with the order of injunction, granted by the Single Judge, by which the defendants were restrained from invoking the bank guarantee."

9. In M/s. Basic Tele Services's case (supra) the bank guarantee could be invoked on the conditions set out in Para 7 on page 5 of the report and it was found by a learned single Judge of this court that as those conditions were non-existent the invocation of bank guarantee was bad in the eye of law.

10. In aforesaid letter of invocation dated 7th September 2000 it is mentioned that an amount of Rs.289 lakhs is outstanding against the plaintiff company. Three bank guarantees in original were sent alongwith this letter for encashment to defendant No.5 bank with the request to issue a bankers' cheque for the amount of Rs. 1.25 crores in favour of IPCL against the bank guarantees forthwith. In my opinion, aforementioned clause 1 of bank guarantee No.43/6 to which my attention was drawn on behalf of the plaintiff only refers to the nature of dues non-payment whereof by plaintiff company would make the beneficiary i.e. IPCL entitled to invoke the bank guarantee furnished by defendant No.5 bank. It does not lay down any obligation/conditions which are to be carried out by the said defendants. That being so, even if separate break up of the amounts towards value of the stocks held by plaintiff company or sales tax liability or any other statutory levies on the quantum of sales of IPCL products etc. are not given in the said letter dated 7th September 2000, that would not render the invocation of bank guarantees in question invalid. Two decisions relied on behalf of the plaintiff have no applicability to the facts of this case. Thus, the contention referred to above deserves to be repelled being without merit.

11. As regards submission at (c) above, it was pointed out on behalf of defendants 1 to 4 that the plaintiff company lifted stocks worth Rs. 241 lakhs between May to July 2000 and only payment of Rs.10 lakhs was made in that account by it; that the amount outstanding in regard to the products viz Indothene, Koylene and Indovin supplied to the plaintiff in June 2000 itself was in the vicinity of Rs. 129.40 lakhs and that covers the total amount of the three bank guarantees in question. In this connection my attention was also drawn to Paras 11 and 15 of the reply filed in said appeal by defendants 1 to 4. It may be noticed that the plaintiff company has not placed any material which may prima facie go to show that the dues shown as outstanding against it only relate to the sale and supplies of Lenial Low Density Polyethlene and High Density Polyethylene products which are different in chemisty, quality, price and use from the products for which the bank guarantees in question were furnished. Therefore, on the said ground invocation of the bank guarantees cannot be validly assailed by plaintiff company.

12. Admittedly, aforementioned distributorship agreement dated 13th August 1991 which stands renewed till October 2000, was executed between IPCL and plaintiff company and under the three bank guarantees IPCL is the beneficiary. However, IPCL is not a party to the suit. Obviously, no order can be made against a person who is not a party to the proceedings. On this count alone, the relief prayed for by plaintiff company against IPCL deserves to be declined.

13. For the foregoing discussion, the application is dismissed.