TaxTMI 
TaxTMI 
2015 (12) TMI 1880
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.... M/s. RMSFC. Three such registered bank guarantees constitute the basis of the controversy in hand. The said bank guarantees were executed by the State Bank of Mysore on 24.12.2010, 09.02.2011 and 10.02.2011. The terms of the bank guarantees being identical, reference to one will be sufficient for all intents and purposes. Relevant clauses of the first bank guarantee are being extracted hereunder: NOW THE GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY GUARANTEES as follows, irrespective of the validity and legal effects of the agreement, if any entered between the parties and waiving all rights of objection and defense arising there from, that the Guarantor shall pay any amount up to the maximum amount of guarantee mentioned herein below, upon the AAFL first demand to the AAFL in the event that the whole seller fails to perform its understanding under any agreement or terms and conditions contained in the consignment order and/or sale invoice, or by any reason of whole seller failure to make the reimbursement thereof to the AAFL, in time. 1. The Guarantee shall come into effect upon offer of delivery by the transport agent of AAFL to whole....
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....is bank guarantee shall be in full force until 23.12.2011. c) We are liable to pay the guaranteed amount or any part thereof under this bank guarantee only and only if the AAFL seves upon us a written claim, either by way registered letter, courier, fax copy of delivered by hand by an authorized agent of the AAFL and make demand there under on or before 23.12.2011. d) We further undertake and agree that this guarantee shall not be revoked during its currency except with your previous consent in writing. Signature and seal of the guarantor (Emphasis is ours) A perusal of the terms of the bank guarantee reveals, that the same was an unconditional guarantee, and that, the guarantor expressly waived off rights of any objection and defence, irrespective of the disputed positions adopted by the contracting parties, or even, the validity and legal effects of the contractual agreement. Under the bank guarantees, the Appellant - M/s. AAFL would first make a demand/claim for the payment in lieu of fruits transported to Respondent No. 1, and in case Respondent No. 1....
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....;ble Court be pleased to pass a judgment and decree in favour of the Plaintiff and against the Defendants for permanent injunction, restraining 1st and 2nd Defendant's bank for paying any schedule guarantee amount to the 3rd Defendant, until and unless the claim of Plaintiff and 3rd Defendant is settled amicably or through court of law. Or in the alternative restraining the 3rd Defendant from receiving the said amount from the 1st and 2nd Defendant bank until and unless the matter has been settled amicably or through court between Plaintiff and 3rd Defendant with court cost and such other appropriate reliefs as the Hon'ble Court deems fit to grant in the circumstances of the case in the interest of justice and equity. SCHEDULE Guarantee amount available in State Bank of Mysore, Shivarampet Branch, Vinoba Road, Mysore guarantee No. 3/10-11 date of issue 24.12.2010 and date of expiry 23.12.2011 and extension guarantee No. 04/2010-2011 (Original guarantee No. 04/2009-10) and renewed period from 10.02.2011 to 09.02.2012 and another guarantee No. 05/2010-11 and date of issue 09.02.2011 and date of expiry 08.12.2011. 5. The trial court pas....
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....of interim injunction relating to Bank guarantees and in exceptional case courts would interfere with the machinery of irrevocable obligations assumed by banks, and that the Plaintiff must establish a prima facie case, meaning thereby that there is a bona fide contention between the parties or serious question to be tried, and further the balance of convenience was also a relevant factor. If the element of fraud exists, then courts step in to prevent one of the parties to the contract from deriving unjust enrichment by invoking bank guarantee. In that case the learned Single Judge came to the conclusion that the suit involved serious questions to be tried and particularly relating to the plea of fraud, which was a significant factor to be taken into account and claim for interdicting the enforcement of bank guarantee should have been allowed. 28. I am, however, of the opinion that these observations must be strictly considered in the light of the principle enunciated. It is not the decision that there should be a prima facie case. In order to restrain the operation either of irrevocable letter of credit or of confirmed letter of credit or of bank guarantee, there should be serious....
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....system may, however require more caution in the issuance of irrevocable documentary credits. It would be for the banks to safeguard themselves by other means and generally not for the court to come to their rescue with injunctions unless there is established fraud. In the result, this appeal must be allowed. The judgment and order of the Allahabad High Court dated February 20, 1987 must be set aside and the order of learned Civil Judge, Lucknow dated August 8, 1986 restored. (Emphasis is ours) 8. Reliance was also placed on Vinitec Electronics Private Ltd. v. HCL Infosystems Ltd. (2008) 1 SCC 544. The following observations have been recorded in the above judgment: 11. The law relating to invocation of bank guarantees is by now well settled by a catena of decisions of this Court. The bank guarantees which provided that they are payable by the guarantor on demand is considered to be an un-conditional bank guarantee. When in the course of commercial dealings, unconditional guarantees have been given or accepted the beneficiary is entitled to realize such a bank guarantee in terms thereof irrespective of any pending disputes. In U.P. State Sugar Corporation....
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....ng transaction. The second exception to the general rule of non-intervention is when there are 'special equities' in favour of injunction, such as when 'irretrievable injury' or 'irretrievable injustice' would occur if such an injunction were not granted. The general rule and its exceptions has been reiterated in so many judgments of this Court, that in U.P. State Sugar Corporation v. Sumac International Ltd. (1997) 1 SCC 568 (hereinafter 'U.P. State Sugar Corpn') this Court, correctly declare that the law was 'settled'. 13. In Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co., this Court summarized the principles for grant of refusal to grant of injunction to restrain the enforcement of a bank guarantee or a letter of credit in the following manner: 14....(i) While dealing with an application for injunction in the course of commercial dealings, and when an unconditional bank guarantee or letter of credit is given or accepted, the Beneficiary is entitled to realize such a bank guarantee or a letter of credit in terms thereof irrespective of any pending disputes relating ....
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.... the bank guarantee. The mere fact that the bank guarantee refers to the principle agreement without referring to any specific clause in the preamble of the deed of guarantee does not make the guarantee furnished by the bank to be a conditional one. XXX XXX XXX 24. The next question that falls for our consideration is as to whether the present case falls under any of or both the exceptions, namely, whether there is a clear fraud of which the bank has notice and a fraud of the beneficiary from which it seeks to benefit and another exception whether there are any "special equities" in favour of granting injunction. 25. This Court in more than one decision took the view that fraud, if any, must be of an egregious nature as to vitiate the underlying transaction. We have meticulously examined the pleadings in the present case in which no factual foundation is laid in support of the allegation of fraud. There is not even a proper allegation of any fraud as such and in fact the whole case of the Appellant centers around the allegation with regard to the alleged breach of contract by the Respondent. The ple....
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....njustice would be caused to the concerned party. 10. Insofar as the present controversy is concerned, the defence of Respondent No. 1 is entirely based on a communication dated 14.01.2011, stated to have been addressed by the Appellant to Respondent No. 1. The aforesaid communication, which constitutes the basis of the defence of Respondent No. 1, is extracted hereunder: ADANI AGRIFRESH LIMITED 14th January, 2011 To Mr. Mahaboob Shariff, M/s. R.M.S. Fruits & Company, # 1875, Anesarui Street, Behind Deveraja Market, Mysore 50 001 Sub: Settlement of amount Sir, We inform you that, our settlement talk held at Mysore, regarding destroyed and damage of 8 (eight) Loads of Apples supplied to you, four firm agreed to receive 1/4th value of total value. Hence, you are directed to send the amount in installments as agreed after we supplying Apple load as earlier. Sincerely Yours, Sd/- Authorised ....
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.... Ltd. v. Singh Consultants and Engineers (P) Ltd. (supra), and in Vinitec Electronics Private Ltd. v. HCL Infosystems Ltd. (supra). Having given our thoughtful consideration to the law laid down by this Court, in respect of grant/refusal of an injunction of an unconditional bank guarantee, and keeping in mind the terms and conditions, more particularly of the contractual conditions extracted and narrated above, we are satisfied that the courts below were not justified in injuncting the invocation of the three bank guarantees, executed by the State Bank of Mysore, at the instance of M/s. RMSFC. We accordingly hereby direct Respondent Nos. 2 and 3 - the State Bank of Mysore to honour the same forthwith. 14. While accepting the claim raised by the Appellant as has been recorded by us in our conclusions hereinabove, it is also imperative for us to record, that we had required the learned Counsel representing the Appellant, to obtain instructions from the Appellant, whether or not the Appellant was truthful in describing the communication dated 14.01.2011 as fabricated and doctored. In case, the Appellant had accepted it to be genuine, we would have permitted the bank guarantees to be ....