Galaxy Power Cables Limited vs Canara Bank And Anr.
2001 Latest Caselaw 654 Del

ORDER

Vikramajit Sen, J.

1. By these Orders, the following applications shall be disposed off - I.A. 6558/94 filed by the Plaintiff under Order XXXIX Rules 1 & 2 of the Code of Civil Procedure (hereinafter referred to as 'the C.P.C.') for an interim injunction restraining the encashment of Bank Guarantee No. 86/90 issued by the Canara Bank-Defendant No. 1 in favor of Madhya Pradesh State Electricity Board-Defendant No. 2; and I.A. No. 7886/97, being the application under Order XXXIX Rule 4 of the C.P.C. filed by Defendant No. 2 for "(a) modification of the order dated 6.7.1994 to the effect that defendant No. 2 should properly invoke the bank guarantee and no further invocation was required and (b) that a direction be given to defendant No. 1 to honour the bank guarantee, encash the same and remit the sum of Rs. 14,12,850/- to the defendant No. 2"; and I.A. 8488/99 under Section 151 of the C.P.C. filed by Defendant No. 1 for the passing of "clear cut directions to Defendant No. 1 in dealing with the guarantee." These applications are intrinsically interwoven with each other and should be disposed off simultaneously.

2. On the first date of hearing, i.e. 5.7.1994, the following Orders were passed:

"I.A. 6559/94

The requisite court fee has been filed.

The application is disposed of accordingly.

S.No. 1368/94 and I.A. 6561/94

Let the suit be registered.

Let the plaintiff place on record the copies of all the correspondence exchanged with regard to the renewal of the bank guarantee. In order to find out whether the letter mentioned in the telegram of defendant No. 2 addressed to defendant No. 1 has been received by the bank or not and if so, in order to see the contents of the said letter, let summons be taken out to the defendant No. 1 with the direction that the said letter, if received, be produced in court, returnable on 6th July, 1994."

3. Two documents had been filed by the Plaintiff on 5.7.1994 and these are reproduced in order to show that they do not shed any light whatsoever on the question of the renewal of the Bank Guarantee:

"FAX MESSAGE

EXECUTIVE DIRECtor (PRG) TO-M/S. GALAXY POWER M.P.E.B. JABALPUR

CABLE LTD.

NEW DELHI.

(FAX NO. 011-4625694 1st INDIA)

SUB: SUPPLY OF CABLES

SUBMISSION OF EXTN. OF B.G. NO. 86/90 EXPIRING ON 31.12.93 REG.

REF: P.O. NO. 07-01/KE/106-H/8018

DT. 25.11.89.

REF. OUR TELEX DT. 28.12.93 REG STATUS OF BALANCE SUPPLY OF CABLES AND EXTN. OF B.G. NO. 86/90, WHICH IS REPRODUCED AS BELOW:

"RECORD NO. 07-01/KE/106-H/8018 DTD. 25.11.89 PLACED ON YOU FOR SUPPLY OF CABLES (.) IT HAS BEEN OBSERVED FROM OUR RECORDS THAT OUT OF TOTAL 286.2 KMS OF CABLES ORDERED YOU'VE SUPPLIED 155.75 KMS OF CABLES (.) ON YR REQUEST 24.7 KMS + 78.25 KMS OF CABLES WERE DELETED FROM YR SCOPE OF SUPPLY VIDE T.O. REF NO. 07-01/STP-AMK/106-H/3999 DT. 22.7.91 & NO. 3875 DT. 8.9.92 (.) THUS TOTAL 27.5 KMS. OF CABLES SUPPLY (INCLUDING CABLES AGAINST OUR dispatch INSTRUCTIONS VIDE NO 07-01/KP/106-H/1677 DT. 19.3.91 IS STILL PENDING SINCE A LONG LAPSE (.) IN ORDER TO SETTLE THE ISSUE YOU'RE REQUESTED TO CONFIRM REG. STATUS OF BALANCE SUPPLY ALONG WITH DETAILS OF PAYMENT. RECT./PENDING ETC. (.) ALSO SUBMIT EXTN. TO YR. B.G. NO. 86/90 DT. 19.5.91 TOWARDS PERFORMANCE/GUARANTEE CLAUSE, ON N/J STAMP PAPER WORTH RS. 50/- KEEPING VALIDITY TILL END JUNE-94 (.) REPLY PER RETURN (.) MATTER MOST URGENT"

YOU'RE ONCE AGAIN REQUESTED TO TAKE AN IMMEDIATE ACTION SO THAT THE MATTER MAY BE CLOSED/SETTLED AT THE EARLIEST.

EXECUTIVE-DIRECtor (PRG)

M.P.E.B. JABALPUR

DT.30.12.1993."

"January 5, 1994

TO : THE EXECUTIVE DIRECtor (PRG)

MPEB, JABALPUR

DEAR SIR,

KINDLY REF YR FA OF DEC. 30 YR TLX MESSAGE OF DEC. 12 HAS NOT BEEN RECD.

IT IS REGRETTED THAT YOU HAVE TAKEN TWO YEARS TO REVERT TO OUR REPRESENTATIONS AND APPROACHES WITH REGARD TO RELEASE OF PAYMENT VIS-A-VIS dispatch OF GOODS. REGRET BANKERS WILL NOT AGREE FOR SUPPLY OF FURTHER MATERIAL UNLESS ALL OUTSTANDING PAYMENTS ARE CLEARED AS PER THE CONTRACTUAL OBLIGATION.

TODAY PLANT IS CLOSED AND COMPANY HAS BEEN DECLARED SICK AND CASE IS PENDING BEFORE BIFR DECLARED SICK AND CASE IS PENDING BEFORE BIFR FOR REHABILITATION.

NO FURTHER CAN BE DONE UNLESS SICK UNIT IS REHABILITATED. WE HAVE TO AWAIT THE DECISION/ADJUDICATION OF HON'BLE BIFR, BUT IN ANY CASE WE WOULD REQUEST YOU TO CONSIDER OUR CASE SYMPATHETICALLY AND GET OUT PAYMENTS RELEASED TO ENABLE A SICK COMPANY TO BECOME HEALTHY.

TKS N RGDS,

FOR GALAXY POWER CABLES LTD.,

Sd/-

S.M. AGARWAL

VICE CHAIRMAN."

4. On 6.7.1994 the following Orders were passed, ex parte Defendant No. 2, who is the beneficiary of the subject Bank Guarantee. After the initial appearance on 6.7.1994, there was no further representation for Defendant No. 1 who was even set ex parte on 13.9.1994 and next appeared only on 9.9.1997. While Defendant No. 2 has filed its Written Statement, no such action has been taken by Defendant No. 1. The manner in which the Bank has prosecuted the case creates as impression of its complicity which its constituent, i.e., the Plaintiff, in defeating its obligations under its Guarantee. The filing of I.A. 8488/99 fortifies this impression.

"S.No. 1368/94 and I.A. 6561/94

Mr Brij Raj Bengali, an officer and attorney of the defendant no. 1 is present. He is required to file a copy of the power of attorney on the record of this case today.

The officer states that the bank guarantee has been invoked by a telegram and it is mentioned in the telegram that the letter invoking the bank guarantee would follow. He further states that till today the letter has not been received by the bank.

If we go by the telegram, copy of which is placed on the record, it does not say that the performance of the plaintiff in respect of the contract has not been satisfactory. For invoking the bank guarantee, the defendant no. 2 has to indicate in the letter invoking the bank guarantee as to whether the contract has been satisfactorily performed by the plaintiff or not. In case the bank receives such a letter, the bank can honour the bank guarantee and not otherwise.

Summons in the suit and notice in the application be issued to defendant no. 2, returnable on 13th September, 1994.

A copy of this order be given dusty to counsel for the Plaintiff as well as the attorney of the bank".

5. At the first hearing on 5.7.1994 the Court had required an elucidation on the contents of the letter mentioned in the telegram of Defendant No. 2 addressed to Defendant No. 1 and received by the latter on 27.6.1994. The telegram reads as follows:

"MANAGER/CANARA BANK/LAJPAT NAGAR NEW DELHI.

CONSIDER THIS TELEGRAM AS CLAIM FOR ENCASHMENT OF BG NO. 86/90 DTD NINTEEN MAY ONE THOUSAND LINE HUNDRED NINTY FOR RUPEES FOURTEEN LAKH TWELVE THOUSAND SIX HUNDRED FIFTY ONLY ISSUED ON BEHALF OF MESSERS GALAXY POWER CABLES, NEW DELHI SINCE THE PARTY HAS NOT EXTENDED VALIDITY OF BG. LETTER FOLLOWS.

PROJECT GENERATION ELECBOARD"

6. There is no subsequent order even with regard to the restraint of payment against the Bank Guarantee. On 9.9.1997 this controversy was quite alive as the Court has observed that "it appears that after passing of the order dated 6th July, 1994, the bank guarantee was further invoked by letter dated 23rd June, 1995 (Annexure E.). Learned counsel for the Defendant-Bank is not in a position to state as to what has happened.

Whether the payment has been made in terms of the bank guarantee or not. At this stage it is said that the payment has not been made and the matter is pending for the last two years." it is indeed remarkable that Defendant No. 1, the Banker of the Plaintiff, did not honour its Bank Guarantee during this long period of five year despite its doubt or ambivalence as to the existence of any injunction. Instead of filing its Written Statement it sought "clear cut directions...in dealing with the guarantee", but even this action was taken as late as in August 1999. However partisan a bank may want to be towards one of its constituents, it should not be at the expense of and in breach of its fiduciary duties and obligations owing to the beneficiary of its Guarantee.

It would be of advantage to set out the Bank Guarantee. I may mention at this very stage, that the arguments on both sides of the bar proceeded on the understanding that the words employed in the bank Guarantee are "cash deposit" instead of "each deposit". The word 'each' appears to be a typographical error.

"GUARANTEE TOWARDS PERFORMANCE

GUARANTEE/BOND

Bank Guarantee No. 86/90 Dated 19.5.90

In consideration of the M.P. Electricity Board, Jabalpur-482008, having agreed to accept this bank Guarantee in lieu of cash deposit by way of Security for due and faithful performance required from M/s. Galaxy Power Cables Limited, A-23, New Shopping Complex, defense-Colony, New Delhi-110024 (herewith after referred to as contractors), we, Canara Bank, Lajpat Nagar Branch, A-9, D.D.A. Shopping Complex, defense Colony, New Delhi-110024, hereby agrees unequivocally and unconditionally to pay within 48 hours on demand in writing from the M.P. Electricity Board or any officer authorised by it in this behalf of any amount up to and not exceeding Rs. 14,12,650/- (Rs. Fourteen lacs twelve thousand six hundred fifty only) to the said M.P. Electricity Board on behalf of aforesaid, M/s. Galaxy Power Cables Limited, New Delhi-110024, who have tendered and contracted for the supply of materials to the said M.P. Electricity Board against Purchase Order No. 07-01/KE/106 H/8018 Dated 25.11.1989 for the order value of Rs. 1,41,26,426.80.

This agreement shall be valid and binding on this Bank up to and including 31st December, 1992 or for such further period as may hereunder be mutually fixed from time to time in writing by the M.P. Electricity Board, and the contractors and shall not be terminable by notice or any change in the constitution of the aforesaid Bank or the firm of contractors or by any other reasons whatsoever and the Banker's liability hereunder shall not be impaired or discharge by any extension of time or variations or alternation made, given conceded or agreed to with or without the Bank's knowledge or consent by or between the M.P. Electricity Board and the contractors in the existing and/or further tenders and/or contract.

It is agreed to by the Bank with the Board that if for any reasons a dispute arises concerning the Bank's liability to pay the requisite amount to the Board under the terms of this guarantee to competent Court of Jabalpur alone shall have the jurisdiction to determine the said dispute and that this shall be without prejudice to the liability of the Bank under the terms of this guarantee being unequivocal and unconditional as mentioned above.

The liability under this guarantee is restricted to Rs. 14,12,650/- (Rs. Fourteen lacs twelve thousand six hundred fifty only). This guarantee shall remain in force until 31st December, 1992 unless a demand to enforce a claim is made under this Bank Guarantee by the Board to the Bank within six months from that date, the rights of the M.P. Electricity Board under this guarantee shall be forfeited and the Bank shall be relieved and discharged from all liabilities there under.

for CANARA BANK."

9. The contention of Mr. V.P. Singh, Learned Senior Counsel appearing for the Plaintiff is that the subject Bank Guarantee was clearly a performance guarantee, and it expired on 30.6.1994. If its invocation was not proper, the Bank/Defendant No. 1, ought not to release any payments to Defendant No. 2. That an improper invocation is a valid reason for not honouring the Bank Guarantee was not contested by Mr. Ishwar Sahai, Learned Senior Counsel for Defendant No. 2. His arguments were that the invocation was legally proper and that no distinction can be favorably drawn by the Plaintiff even if it be assumed that it is a Performance Guarantee. The respective arguments must be appreciated keeping the factors in perspective.

10. Mr. V.P. Singh, learned Senior Counsel for the Plaintiff, has placed reliance on the decision rendered in Hindustan Construction Co. Ltd. V. State of Bihar & Ors., . The Contractor (HCCL) had furnished a bank guarantee for ten percent of the contract price as "performance guarantee", and a number of bank guarantees towards "mobilisation advances:, one of which was for Rs. 40 lakhs, for which no corresponding advance payment had been released by the State of Bihar. The Division Bench hearing the appeal from the Orders of the Trial Court vacated the injunction relating to "mobilisation advance" while maintained the injunction in respect of the "performance guarantee". It is not debatable that the Court recognized that there are these two distinct genre of Bank Guarantees. In respect of the legal position on the subject, the Hon'ble Supreme Court observed as follows:

"8. Now, a bank guarantee is the common mode of securing payment of money in commercial dealings as the beneficiary, under the guarantee, is entitled to realise the whole of the amount under that guarantee in terms thereof irrespective of any pending dispute between the person on whose behalf the guarantee was given and the beneficiary. In contracts awarded to private individuals by the Government, which involve huge expenditure, as, for example, construction contracts, bank guarantees are usually required to be furnished in favor of the Government to secure payments made to the contractor ad "advance" from time to time during the course of the contract as also to secure performance of the work entrusted under the contract. Such guarantees are encashable in terms thereof on the lapse of the contractor either in the performance of the work or in paying back to the Government "advance", the guarantee is invoked and the amount is recovered from the bank. It is for this reason that the courts are reluctant in granting an injunction against the invocation of bank guarantee, except in the case of fraud, which should be an established fraud, or where irretrievable injury was likely to be caused to the guarantor. This was the principle laid down by this Court in various decisions. In U.P. Coop. Federation Ltd. vs. Singh Consultants & Engineers (P) Ltd. the law laid down in Bolivinter oil SA vs. Chase Manhattan Bank was approved and it was held that an unconditional bank guarantee could be invoked in terms thereof by the person in whose favor the bank guarantee was given and the courts would not grant any injunction restraining the invocation except in the case of fraud or irretrievable injury. In Svenska Handelsbanken vs. Indian Charge Chrome, 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 Ltd. vs. Tarapore & co. as also in U.P. State Sugar Corpn. vs. Sumac International Ltd. the same principle has been laid down and reiterated.

9. What is important, therefore, is that the bank guarantee should be in unequivocal terms, unconditional and recite that the amount would be paid without demur or objection and irrespective of any dispute that might hve cropped up or might have been pending between the beneficiary under the bank guarantee or the person on whose behalf the guarantee was furnished. The terms of the bank guarantee are, therefore, extremely material. Since the bank guarantee represents an independent contract between the bank and the beneficiary, both the parties would be bound by the terms thereof. The invocation, therefore, will have to be in accordance with the terms of the bank guarantee, or else, the invocation itself would be bad."

11. It was found by the Apex Court that the Bank Guarantee in respect of the mobilisation advance was not unequivocal and the right to invoke it was fettered by the precondition of advances having been released by the State of Bihar. The view of the Division Bench was thus overturned. The Apex Court thereafter observed that "on a perusal of the performance bank guarantee it was palpably evident that it could have been invoked only by the Chief Engineer" and since it was done by the Executive Engineer, the invocation was wholly non est. The Court also opined that having "scrutinised the facts pleaded by the parties in respect of both the bank guarantees as also the documents filed before us and we are, prima facie, of the opinion that the lapse was on the part of the defendants who were not possessed of sufficient funds for completion of the work. The allegation of the defendants that HCCL itself had abandoned the work does not, prime facie, appear to be correct and it is for this reason that we are of the positive view that the "special equities" are wholly in favor of HCCL." This decision, on the facts obtaining therein, cannot be extrapolated into the present case where no such 'special equities' exist. On the contrary 'special equities' are obviously in favor of the encashment of the Bank Guarantee since the Plaintiff is in financial doldrums and is before the BIFR. Both the Defendants are solvent. The terms of the two Bank Guarantees are also different.

12. Mr. Ishwar Sahai, Learned Senior Counsel appearing on behalf of Defendant No. 2, had countered this contention of their being two different types of Bank Guarantees by referring a latter decision of the Supreme Court (where however the HCCL case was not considered) in Oil & Natural Gas Corporation Ltd. v. SBI, Overseas Branch , Bombay, , in which it was observed as follows:

"The same is the principle stated by this Court in Hindustan Steelworks Construction Ltd. v. Tarapore & Co. It is held therein that encashment of an unconditional bank guarantee does not depend upon the adjudication of disputes. No distinction can also be made between a bank guarantee for due performance of a work contract and a guarantee given towards security deposit for a contract or any other kind of guarantee. Where the beneficiary shall be the sole judge on the question of breach of primary contract the bank shall pay the amount covered by the guarantee on demand without a demur. In the absence of a plea of fraud, guarantee had to be given effect to."

13. Since the question of the difference in Bank Guarantees was directly in the contemplation of the earlier Bench, the views expressed therein must be followed. It should be adumbrated that in the later case the issue was whether Leave to Defend as envisaged in Order xxxvII of the C.P.C. should be granted despite the existence of an injunction restraining the encashment of the bank Guarantee between the parties. The ratio decidendi of the ONGC's case (supra) is to be found in the last paragraph of the judgment which reads as follows:

"11. When, in fact, there is no defense for the suit filed, merely to rely upon an injunction granted or obtained in their favor does not carry the case of the respondent Bank any further. The only basis upon which the respondent Bank sought for and obtained the injunction is that in the event the counter-guarantee cannot be honoured by reason of the injunction granted by the Italian court the respondent Bank should be extended the similar benefit. But a perusal of the Foreign Exchange manual makes it clear that none of the claims would be an impediment to make payment under the bank guarantee in question. Therefore, in out view, the High Court plainly erred in having granted leave to defend unconditionally. We vacate that order and dismiss the application filed by the respondent Bank for leave to defend by allowing this appeal. Considering the nature of the case, we order no costs."

Shri V.P. Singh, Learned Senior Counsel for the Plaintiff, has relied heavily on the observation of this Court in M/s. Radhey Shyam Bansal v. M/s. Indian Farmers Fertilisers Co-operative Ltd., the effect that "it is equally settled that the beneficiary is entitled to invoke that Bank Guarantee and seek its encashment in accordance with the terms and tenor of the Bank Guarantee." The Learned Judge was obviously influenced by the fact that the invocation letter had not been filed, and therefore drew an adverse inference against the Plaintiff. This finding should not be road in isolation of the terms of the Bank Guarantee in that case. The contract between the Beneficiary and the Plaintiff was specifically mentioned in that Bank Guarantee, since otherwise it may not have been appropriate for the Court to peruse and implement the sundry clauses of the contract. The normal rule is that only the Bank Guarantee should be read. In order to illustrate the conditional nature thereof, its clauses are reproduced below:

1. Now, the conditions of this bond/guarantee is such that if the principal shall duly perform and observe all the terms, provisions, conditions and stipulations of the contract including the covenants concerning guarantees /warranties/maintenance stipulated therein, on the part of the principal to be performed and observed according to the true purpose, intent and meaning thereof or if no default of the Contractor, the Surety shall satisfy and discharge the damages sustained by the owner thereby up to the amount of the bond guarantee herein then the obligation herein shall be null and void but otherwise shall be in full force and effect for a period of 12 months.

2. This guarantee herein contained is not revocable by notice during currency and will remain in full force until all the undertakings, covenants, terms, conditions and agreements of the said contract are performed and fulfillled or until it is, by notice in writing revoked by the owner.

3. We do hereby undertake to pay the amount due and payable under this guarantee without any demur merely on demand from the owner stating that the amount claimed is due by way of that loss or damages caused to or suffered or would be caused to or suffered by the reason of any breach by the said principal of any of the terms and conditions contained in the said contract or by reason of the said principal's failure to comply with any of the conditions with regard to the contract set out in this Bond. Any such demand made on us shall be restricted at an amount not exceeding Rs. 11,50,000/- (Rupees eleven lakhs fifty thousand only)."

(emphasis added)

Mr. V.P. Singh, Learned Counsel appearing on behalf of Plaintiff, also alluded to the decision in M/s. Basic Tele Services Ltd. v. Union of India & Anr., . This case also falls in the same category as the foregoing one. The entire discussion must be read in the context of the above comments. A perusal of the relevant clause in the Bank Guarantee inexorably leads to conclusion that it was not an unconditional Bank Guarantee. Whenever mercantile documents are to be considered and construed, the Courts should steel clear from adopting any approach other than giving the plain meaning to the words employed therein. These documents have been negotiated and settled by men of business, possessing sufficient acumen to articulate and state precisely what was settled between them. If one of the parties has agreed to enter into a business relationship on very restricted terms, such as an unconditional Bank Guarantee, it would be wholly inappropriate for the Court to read restrictive covenants into the document. This argument holds goods, in equal measure, where a party had entered into a compact only on several terms and conditions, as in M/s. Radhey Shyam Bansal's case (supra) and M/s. Basic Tele Services's case (supra). The change in the latter case reads as under:

"3. We undertake to pay to the authority, an amount not exceeding Rs. 50,00,00,000/- upon receipt of its first written demand without any demur if the authority note that the amount claimed by is due to or owing to the occurrence of one or both of the two conditions, specifying the occurred condition or conditions."

Mr. V.P. Singh, Learned Senior Counsel for the Plaintiff, has also relied on the opinion of the Learned Single Judge in M/s. Basic Tele Services case (supra) that the recital contained in the Bank Guarantee are not a surplasage which could be thrown to the winds. When this opinion is considered along with the views of another Learned Single Judge in Maihar Cement, Century Textile & Industries Limited v. Krishna Gears (P) Ltd., & Anr., 2000 VI AD (DELHI) 1 there appears to be a divergence in the perspective of the law. But this is not so. In the first case the terms dealing with the invocation of the Bank Guarantee could be confirmed by a reference to the Recitals; whereas in the second, the terms were so explicit, precise and unambiguous, that in toning them down by alluding to the recitals the purpose of the Bank Guarantee would be violated. Even if the so-called recitals in the case at hand are considered, they merely qualify that the Bank Guarantee was given in lieu of a cash deposit, and necessary details of the 'performance' are wholly absent. Even if it is felt that there is a divergence of views, I would prefer the view in the latter case, where it was opined that the recitals should not overwhelm the obvious import of the operative part of the Bank Guarantee. I am supported by The Concise Dictionary of Law published by the Oxford University Press which states that "the recitals of a deed are those parts that merely declare facts and do not effect any of the substance of transaction"; any Bryan A. Garner's A Dictionary of Modern Legal Usage, in which recital means "the formal statement, or setting forth, of some related matter of fact in my deed or writing, as to explain the reason for a transaction"; and in Black Law Dictionary, Fifth Edition, "formal statement or setting forth of some matter of fact, in any deed or writing, in order to explain the reasons upon which the transaction is founded"; and by the Concise Oxford Dictionary that explains the word to be "that part of a legal document that states the facts"; any by Wharton's Law Lexicon, Fourteenth Edition, as follows - "If the recitals are clear and the operative part is ambiguous, the recitals govern the construction. If the recitals are ambiguous, and the operative part is clear, the operative part must prevail. If both the recitals and the operative part are clear, but they are inconsistent with each other the operative part is to be preferred. (Ex parte Dawes, (1886) Vol. XVII Queen's Bench Division p. 286, per Lord Esher, M.R.). It would in the present case be fallacious to construe and confuse the recitals with the operative part, even if it is assumed that both are clear. In the event that the language of the operative part of the Bank Guarantee is ambiguous which is not the case here, it would be permissible to take recitals into contemplation.

Returning to the present case, in the Plaint it has been stated that a Letter of Intent had been placed on the Plaintiff by Defendant No. 2 for an amount of Rs. 1,41,26,426.80 excluding taxes and duties. By reference to the clauses contained in the Letter of Intent/Order between the Plaintiff and Defendant No. 2 it is sought to be argued that the Bank Guarantee was of the nature of Performance Guarantee of the Value of ten per cent of the contract price. This is in addition to the fact that the words "for due and faithful performance" have been employed in the Bank Guarantee. The initial period of the Bank Guarantee was from 19.5.1990 up to 13.12.1992 and was extended up to 31.12.1993. It is then averred that inspite of non-receipt of payment as per schedule-obligation, supplies were effected. But as a consequence of the non-receipt of payments in time, the Plaintiff was eventually declared as a sick company and its Scheme for rehabilitation is pending before the BIFR. Despite its various requests Defendant No. 2 failed to make payments. Thereafter the Plaintiff sought an extension of the Bank Guarantee but since it had become sick, Defendant No. 1 demanded the deposit of 100 per cent margin. Since the Bank Guarantee was not extended by the Plaintiff, a claim was lodged by Defendant No. 2 with Defendant No. 1 for the full value. It is then submitted that Defendant No. 2 has sought to encash the Bank Guarantee contrary to its terms; that the Defendant No. 2's claim cannot be entertained on the ground of its non-extension, as also because the full value has been claimed; and that it was a performance guarantee and no breach of any term of the contract had been committed by the Plaintiff.

At its very beginning, the Bank Guarantee states that it is in consideration of Defendant No. 2 having agreed to accept it in lieu of 'cash deposit by way of security for due and faithful performance". required of the Plaintiff. Thereafter Defendant No. 1 has agreed to unequivocally and unconditionally pay within 48 hours on written demand of the Board of Defendant No. 2 or any authorised officer. Having scrutinised the Bank Guarantee I am unable to find any qualification on the nature of the "demand". In contrast, in the HCCL case, the Apex Court specifically took into account that the Guarantee itself envisaged its invocation in the event that the contractor failed to meet its obligation. In these circumstances the subject Bank Guarantee is quite clearly unconditional and unequivocal. The use of the nomenclature "performance" would not make it incumbent for the beneficiary to make out a case of the Plaintiff's non-performance. All that was required and necessary was for a demand to be made, and even if any reason was given in support, this would be superficiality which should be ignored. On 30.12.1993 the Executive Engineer of Defendant No. 2 demanded an extension of the Bank Guarantee till the end of June 1994. This was complied with. Then followed a similar demand in terms of the letter dated 13.6.1994 of the Defendant No. 2. It is the next event which has generated controversy. Since another extension could not be arranged by the Plaintiff, the Executive Engineer of Defendant No. 2 sent the telegram dated 23.6.1994 to Defendant No. 1, which telegram was admittedly received.

For too much significance was asked by Shri V.P. Singh, Learned Senior Counsel appearing on behalf of Plaintiff, to be attached to the statement "Letter Follows" in the Telegram. Even if it is assumed that the invocation was carried out in terms of Defendant No. 2's letter dated 23.6.1994 and that no steps for its encashment were taken prior thereto, it would make no appreciable difference to the case. As in the case of Maihar Cement's case (supra) the Bank Guarantee only required the lodging of a demand, nothing more. Whether the telegram is read conjointly with or in isolation of the letter that followed would also not change the circumstances in favor of the Plaintiff, because Defendant No. 2 was not required to give reason for the demand, or to justify the invocation on the grounds of the non-performance of obligations of any of the parties contained in another document. In the HCCL case (supra), the Apex Court was of the view that the Guarantee was conditional and therefore thought it necessary that the invocation must be "in terms thereof". If it was permissable to make an invocation/demand simpliciter, as was done in the telegram, it was also in order to merely state that this action was necessitated because of non-extension of Bank Guarantee. There was already a history around this question, within the knowledge of the Bank. In contradistinction, even if there was a history pertaining to the performance of the terms of the contract between the Plaintiff and Defendant No. 2, the Bank was not concerned with it. When parties agree that the Bank Guarantee is invocable only in the event of failure to perform the contract between the party (the Plaintiff herein) at whose instance it is given in favor of the beneficiary (Defendant No. 2), and that the Bank must insist on this state of affairs being proved by Arbitration or Court Order, the Bank Guarantee should explicitly state so. Mere perfunctory use of the word 'performance' will not transform an unequivocal and 'on demand' Bank Guarantee into a conditional one. The answer to the argument that it would be inequitable to allow payment even if none had fallen due can be found in the qualification/defense of fraud of an egregious nature which has been so determined. (See National Thermal Power Corporation Ltd. v. Flowmore Pvt. Ltd. & Another, and U.P. State Sugar Corporation v. Sumac International Ltd., ). No injustice can result in contemplating strict liability under a Bank Guarantee. It is open to the Plaintiff to initiate appropriate legal action to prove that no moneys were claimable from it under a Bank Guarantee that has been encashed, rather than compel the beneficiary of an unequivocal bank Guarantee to complete this exercise. All the more so when the Plaintiff is before BIFR and is palpably suffering liquidity problems. The Apex Court has opined, on several occasions, that if fraud is pleaded as a reason for non-encashment of the Bank Guarantee, this fraud should not only partake of an egregious character, but should also have been held to be so. The Supreme Court has also repeatedly observed that it is not the province of the Court or of the Bank to peruse and consider the documents or compact between the beneficiary and the party at whose instance the Guarantee has been issued, the only exception being wherein the Guarantee itself, in clear and unambiguous terms, expects and invites this to be done.

In this analysis I am of the opinion that the subject Bank Guarantee was unconditional. This being so no reasons need have been stated for justifying its invocation. The statement in the telegram to the effect that the Bank Guarantee was being invoked, in June 1994, because the Plaintiff had failed to arrange for its renewal must be considered in the sequence of the various previous correspondence exchanged between the parties. Even if the request for encashment was predicated on the failure of the Plaintiff to arrange for the renewal of the Bank Guarantee, in the circumstances of the Bank Guarantee being unconditional, it would require to be ignored. No prima facie case for the issuance of the interim injunction exists. The Plaintiff's I.A. 6558/94 filed under Order XXXIX Rules 1 and 2 is dismissed. I.A. No. 8488/99 filed by Defendant No. 1 under Section 151 of the C.P.C. is disposed off with the direction that the Bank Guarantee should be encashed in favor of Defendant No. 2 forthwith. I.A. No. 7886/97 filed by Defendant No. 2 under Order XXXIX Rule 4 of the C.P.C. also stands disposed off.

The Plaintiff shall pay costs of Rs. 10,000/- to Defendant No.2.