LexM/S GANGOTRI ENTERPRISES LTD. versus UNION OF INDIA & ORS.
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[2016] 2 S.C.R. 1074
M/S GANGOTRI ENTERPRISES LTD.
v.
UNION OF INDIA & ORS.
(Civil Appeal No. 4814 of2016)
MAYOS,2016
(J. CHELAMESWAR AND ABHAY MANOHAR SAPRE, JJ.]
Arbitration and Conciliation Act, 1996 ·- s. 9 - Bank guarantee
- Encashment - Injunction against - Award of two contracts by
Railway Department to Contractor - Termination of the first contract
for non-completion of work-As regards second contract, contractor
on its completion asked for return of Bank guarantee - However.
Railway Department sought encashment of Bank Guarantee -
Invocation of arbitration clause by Contractor - Application uls. 9
by contractor seeking injunction against the Department from
encashing Bank Guarantee - Dismissed by the courts below - On
appeal, held: Arbitration proceedings in relation to the first contract
still pending - Sum claimed from the contractor does not relate to
the contract for which the Bank Guarantee was furnished but relates
to another contract for which no bank guarantee was furnished -
Further. the sum claimed by the contractor neither an admitted sum
and nor a sum which stood adjudicated by any court of law in any
;udicial proceedings but a disputed sum - Bank Guarantee being
in the nature of a· performance guarantee furnished for execution
work of second contract and work having been completed to the
satisfaction of the Department, they had no right to encash the Bank
Guarantee - Contractor made out a prillia facie case in their favour
for grant of injunction against the Department so also balance of
convenience and irreparable loss - Thus, entitled to claim injunction
against the Department in relation to encashment of Bank Guarantee
- Order passed by the High Court set aside.
Allowing the appeal, the Court
HELD: 1.1 On perusal of the record of the case, it is found
that firstly; arbitration proceedings in relation to the contract dated
22.08.2005 are still pending. Secondly, the sum claimed by the
respondents from the appellant does not relate to the contract
for which the Bank Guarantee had been furnished but it relates
1074
M/S GANGOTRI ENTERPRISES' LTD. v. UNION OF INDIA
to another contract dated 22.08.2005 for which no bank 'guarantee
had been furnished. Thirdly, the sum claimed by the respondents
from the appellant is iu the nature of da~.ages, which is not yet
adjudicated upon. in arbitration proceedings. Fourthly, the sum
claimed is neither a sum due in praesenti no~ a sµm payable. In
other words,. the sum claimed by the respondents is neither an
admitted sum and.nor a sum which stood adjudicated. by any Court
of law in any judicial proceedings but it is a disputed sum and
lastly, the Bank Guarantee in question· being in the nature of a
performance guarantee furnished for execution work of contract
dated 14.07.2006 (AV works) and the work ha_vjng b.een
completed to th{ satisfaction of the respondents, they had iio
right to encash the·BankGuarantee. Both the courts below erred
in dismissing the appellant.'s application for grj\nt of_injunction.
Both the courts' committed jurisdictional error when they failed
to take note of the law laid down by this Court in Union of India
(DGS&D) relating to the Bank Guarantee. [Paras 42, 43) [1086-
G-H; 1087-A-C]
Union of India vs.· Ralnan Iron Foundry 1974 (3) SCR
556:(1974) 2 sec 231 - relied on.
1.2 The District Judge having decided the· injunction
application in the first i.nstance in appellant's favour in, rejecting
the application made by. the appellant second. time. It is ,not in
dispute that the respondents despite having suffered the
injunction order did not file any appeal against this order. Such
order thus attained finality and was, therefore, binding on the
pa_rties. [Para 44) [1087-F-G]
1.3 The appellants have made out a prima facie case in their
favour for grant of injunction against the respondents so also they
have made out a case. of balance of convenience and irreparable
loss in their favour. They are, therefore, entitled to claim
injunction against the. respondent in relation to eucashment of
Bank Guarantee. The impugned order is set .aside and in
consequence the injunction application made by the appellant
under Section 9 of the Act in Arbitration Suit is aliowed and
injunction is granted in appellant's favour by restraining the
respondents jointly and severally from encashing Bank Guarantee
furnished by the appellant in connection with AV Works. [PExcerpt shown. Read the full judgment & AI analysis in Lexace.