LexDWARIKESH SUGAR INDUSTRIES LTD. versus PREM HEAVY ENGINEERING WORKS (P) LTD.
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A B DWARIKESH SUGAR INDUSTRIES LTD. v. PREM HEAVY ENGINEERING WORKS (P) LTD. MAY 7, 1997 IK.S. PARIPOORNAN, K. VENKATASWAMY AND B.N. KIRPAL, JJ.] Code of Civil Procedure, 1908 : Order 39 Rule J. C Bank Guarantee-Encashment of unconditional bank guarantee-In- junction restraining-No allegation of fraud or i"etrievable ham1 or injustice made in the injunction application-Held : Only in exceptional case of established fraud which would vitiate the very foundation of the bank guaran- tee or its encashment resulting in i"etrievable hann or injustice which would make it impossible for the guarantor to reimburse himself, if it ultimately D succeeded, cowt should nonnally not grant injunction-Principle of undue enrichment not applicable to encashme11t of bank guarantee-In the cir- - cwnstances of the case, High Coult emd in granting the injunction without referring to the decisions of the Supreme Coult-Bank also not shown profes- sional efficiency and acted in a paltisan manner in not honouring its com- E mitmellts even when there was no restraint order of any coult. F Bank guarantee---£ncashment of-Injunction restraining-Held : In- junction of cowt ought not to be an i11strnme11t which is used in nullifying the temis of a co/llract, agreement or u11de1taki11g which is lawfully enforc2- able. Constitution of India, 1950: A1ticle 141. Precedelll-Wlzen law is well settled as a result of judicial pronounce- mellls of Supreme Cowt it would amount to judicial impropriety and judicial adventurism for the mbordinate cowts including the High Coult to ignore the G same and pass contrwy orde~Such practice strongly deprecated. Doctrines : "Doctrine of Unjust EnrichmeJZt''-Applicability of H The appellant and respondent No. I had entered into an agreement 184 DWARJKESH SUGAR IND. LTD. v. PREM HEAVY ENGG. WORKS LlD. 185 whereby respondent No. 1 was to supply boiling house equipment to the A appellant within a fixed time schedule. Respondent No. 1 furnished two bank guarantees in favour of the appellant. One of the bank guarantees was issued to ensure timely delivery of equipment and supply by respon- dent No. 1. The other bank guarantee was issued for securing the advance given by the appellant. The terms of the bank guarantees were similar. The respondent on the very next day obtained an ex parte injunction from the civil court restraining the appellant from encashing the bank guarantee. Hence, the bank made no payment. Subsequently, respondent No. 1 obtained another ex parte injunction in respect of the second bank guarantee. B c After the appellant became aware of the filing of the suit and the injunction application it entered appearance in court although no notice had been served on it. The Civil Judge vacated the ex parte injunctions and dismissed the injunction applications relying on a number of decisions of this Court. D The appellant again approached the bank for the encashment of the guarantees, but without success. Respondent No. 1 then filed a revision petition before the High Court challenging the order of the trial court. The Single Judge of the High Court remanded the matter back to the trial' E Court for a fresh decision but, at the same time, directed that till the disposal of the injunction application the bank guarantees in question would not be invoked or encashed. Due to the dilatory tactics adopted by respondent No. 1 the said injunction application had not yet been disposed of by the trial court with F the result that the injunction gr,mted by the Single Judge continued. Being aggrieved, the appellant preferred the present appeal. Allowing the appeal, this Court HELD : I.I. Courts should be slow in granting an injunction to restrain the realisation of the bank guarantee. The courts have carved out only two exceptions : (l) II' there is a fraud in connection with the bank guarantee which would vitiate the very foundation of such a bank guaran- G tee and the beneficiary seeks to take advantage of it, then he can be restrained from doing so. But for that the fraud has to be an established H 186 SUPREME COURT REPORTS [1997] SUPP. 1 S.C.R. A fraud. (2) Where allowing the encashment of an unconditional bank guarantee would result in irretrievable harm or injustice to one of the, / . parties concerned. The resulting of irretrievable injury has to be such a circumstance, which would make it impossible for the guarantor to reim- burse himself, if he ul
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