TaxTMI 
TaxTMI 
1996 (12) TMI 294
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....clause 2.1 of the contract at Rs. 1,780 lakhs. 3. Under the terms of the agreement the respondent was required to set up the plant and make it ready for commercial production by 30-11-1990. The agreement stated that in this regard time was of the essence of the contract and if the respondent failed to do so the consequences were also spelt out in the contract. Under clause 3 of the contract a monthwise progressive delivery report was to be submitted by the respondent and a PERT/CPM chart had to be submitted and adhered to. Clause 4 which dealt with delivery required the respondent to complete all supplies by 15-11-1990, so that the plant could be commissioned by 30-11-1990. Under clause 11.1, the respondent-seller was entitled to a reasonable extension of time as decided by the purchaser if the purchase order was expressly suspended for no fault of the seller. 4. Under clause 15 the respondent-seller was required to furnish to the appellant five bank guarantees as specified therein. These were : 1.A bank guarantee for timely delivery of plant and machinery as provided in clause 14.1 representing five per cent of the contract price referred to in clause 2.1. This was requir....
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....e pending before any Tribunal, arbitrator or court with regard thereto. 7. Accordingly, the respondent furnished, inter alia, four bank guaran tees, one being a guarantee for due delivery and the other three being the bank guarantees in respect of advance payment of price. The total amount covered by the bank guarantees securing advance payments is Rs. 3.56 crores, which amount was paid by the appellant to the respon- dent as advance. 8. The contract was not carried out within the time envisaged under the contract. Thereafter, at a meeting held on 1-10-1991, between the appel- lant and the respondent, the time for completion of this project was extended up to May, 1992, and a detailed chart was drawn up for the completion of the project by that date. No further extension of time has been given by the appellant to the respondent thereafter. The respondent, however, did not complete the said project within the extended period. 9. By their letter dated 6-9-1995, the State of U.P. through the Special Secretary, Government of U.P., informed the managing director of the appellant that it had been decided to transfer the Rohana Kalan (Muzaffarnagar Unit) of the appellant to the j....
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....over from the guarantor any amount shall not be affected or suspended by reason of any disputes that may have been raised by the respondent with regard to its liability or on the ground that proceedings are pending before any Tribunal, arbitrator or court with regard to such dispute. The guarantor shall immediately pay the guaranteed amount to the appellant-purchasers on demand. 12. 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 realise 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 realisation 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 th....
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....tomer, for irreparable damage can be done to a bank's credit in the relatively brief time which must elapse between the granting of such an injunction and an application by the bank to have it charged'. This court set aside an injunction granted by the High Court to restrain the realisation of the bank guarantee. 13. The same question came up for consideration before this court in Svenska Handelsbanken v. Indian Charge Chrome [1994] 79 Comp. Cas. 589. This court once again reiterated that a confirmed bank guarantee/ irrevocable letter of credit cannot be interfered with unless there is established fraud or irretrievable injustice involved in the case. Irretriev- able injury has to be of the nature noticed in the case of Itek Corpn. v. First National Bank of Boston 566 Fed. Supp. 1210. On the question of fraud this court confirmed the observations made in the case of U.P. Co- operative Federation Ltd. (supra) and stated that the fraud must be that of the beneficiary, and not the fraud of anyone else. 14. On the question of irretrievable injury which is the second exception to the rule against granting of injunctions when unconditional bank guarantees are sought to be r....
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....ntract. The duty of the bank under a performance guarantee is created by the document itself. Once the documents are in order the bank giving the guarantee must honour the same and make payment ordinarily unless there is an allegation of fraud or the like. The courts will not interfere directly or indirectly to withhold payment, otherwise trust in commerce internal and international would be irreparably damaged. But that does not mean that the parties to the underlying contract cannot settle the disputes with respect to allegations of breach by resorting to litigation or arbitration as stipulated in the contract. The remedy arising ex contractu is not barred and the cause of action for the same is independent of enforcement of the guarantee.' The other recent decision is in Hindustan Steelworks Construction Ltd. v. Tarapore & Co. [1996] 87 Comp. Cas. 344. 16. Clearly, therefore, the existence of any dispute between the parties to the contract is not a ground for issuing an injunction to restrain the enforcement of bank guarantees. There must be a fraud in connection with the bank guarantee. In the present case we fail to see any such fraud. The High Court seems to have come ....
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.... directors for safeguarding the financial and other interests of the company or in the public interest. Under section 17 after making an inquiry, if the Board is satisfied that a company has become a sick industrial company, the Board may then decide, by an order in writing, whether it is practicable for the company to make its net worth exceed the accumulated losses within a reasonable time. If this is practicable, then the Board shall give such company the opportunity to make its net worth exceed the accumulated losses. Under sub-section (3) of section 17 if the Board decides that this is not practicable within a reasonable time, it may adopt measures specified in section 18 and provide for a scheme for appropriate measures in relation to that company. There can, therefore, be no presumption that the company will, in no circumstances, be able to discharge its obligations. 18. Under section 22 on which the respondent relies, where in respect of an industrial company, an inquiry under section 16 is pending, or any scheme under section 17 is under preparation or a sanctioned scheme is under implementation or when an appeal under section 25 is pending, then no proceedings for the ....